Why is it important to start calculating and keeping track of your net worth?
No matter what type of journey you decide to embark on, knowing where you currently stand and where you want to go are among the most crucial steps if you want to make forward. After all, you can’t make decisions on your next steps if you have no idea where you are.
Well, you can, but you’d probably be wandering aimlessly, like that scene in Bird Box where they go on a grocery trip…but even then, they had GPS in the car to help them navigate.
Which is why, in this 30 Days to Improve Your Finances blog series, we will be starting with calculating your net worth.
Knowing your net worth helps you figure out:
- what your current financial standing is,
- what steps your need to make in order to reach your financial goals.
I’ve been religiously monitoring our family net worth since July 2016 and I shamelessly posted about our journey so far in this post.
Money is something many of us are uncomfortable to talk about but let’s break that stigma and bring it to light. Why not start to openly discuss about money and learn from each other’s successes and failures, right?
Now, before you decide to go ahead and follow the family financial road map I’ve laid out for you, you need to make know where you stand first.
Here is how to calculate your net worth:
List down all your assets
Our assets are currently broken down into three categories: cash, paper assets, and physical assets.
Cash assets include:
- Cash on hand
- All money in virtual wallets (PayPal, GCash)
- All money in bank (savings, checking)
Paper assets include:
- Investment accounts (mutual funds, stocks, bonds)
- Retirement accounts (PERA)
- Government securities (T-Bills, T-Bonds)
- Other savings through government programs (Pagibig MP2, SSS Peso Fund)
- Cash value of all insurance policies, if applicable
Physical assets include:
- Personal property like art, jewelry or furniture
- Your car
- Businesses (even if it’s online)
- Market value of your home/real estate investments
Some people do not account real estate as part of their asset, especially if it’s not a rental one, but there are others who do.
In our net worth tracker, I included total assets with and without real estate (home + condo unit) as well as net worth with and without real estate in the computation.
List down all your liabilities
Ahhh…this is the part I personally don’t like to see but we all have to deal with this beast if we want to achieve financial freedom.
Currently, our liabilities are listed down under two categories: debts and debts from physical assets.
- credit card debt
- personal debt (loaned from family or friends)
- other debts
Debts from physical assets include:
- Mortgage (we have both for the house and condo)
- Car loan
We Filipinos are quite lucky because we don’t have to deal with student loans.
Simply subtract your liabilities from your assets
Now that you have all your numbers, simply subtract your liabilities from your assets.
How did you do?
Ideally, your liabilities should be smaller than your assets.
Otherwise, that means you’re currently broke (haha) and need to work on building your assets!
Ours is currently in the red (negative), if we don’t count our real estate properties as part of our assets.
No matter what your result is, don’t feel too bad about it. The fact that you actually took the first step to calculate your net worth already puts you in the right direction. Now you just have to make sure that you follow through this blog series so you can create better financial habits and achieve financial freedom fast!
Are you joining us?
Our current goal in 2019 is to achieve Php 1 million in net worth before I turn 30 in October, or before the year ends. It’s a crazy goal and we are only a quarter through the journey. (We are using our total net worth, including real estate, this time.)
If you want to build better financial habits, achieve financial freedom or even follow the F.I.R.E. (Financial Independence, Retire Early) movement, then follow us on Facebook or join our brand new Facebook group! Let’s encourage each other and slay our goals!
We’re also doing a 30 Days to Improve Your Finances series here on the blog, so make sure you keep your eyes peeled for daily posts in January!