What is net worth exactly? A while ago, I published a video sharing my own net
worth, and I got quite a few questions about, what is net worth?
How do you calculate net worth?
In today's video, I'm going to be addressing those
questions. I'll be explaining what Net worth is exactly, how to calculate net
worth, when and where to start tracking your net worth, and why it's important, or
why it's not important, to know your net worth and track it.
I am Tiffany Thomas with Wealthy Tiffany Dotcom, and I've been able to grow
my net worth to over a million dollars now.
So if you are interested in becoming
a millionaire or becoming financially free at a young age,
hit that like button and hit the subscribe button and we're going to dive right in.
Let's talk about what net worth is exactly.
Essentially, it is a measure of wealth.
It's the dollar amount you would have if you paid off all of your debts or all
of your loans and you sold all of your property or all of your assets for cash.
Another popular way to say this is taking all of your assets and minus-ing,
all of your liabilities, and then that leftover amount would be
your net worth and it could be positive or it could be negative.
Basically everything you own, minus everything you owe.
Let me give you a specific example about how this actually works.
So in order to calculate my own net worth,
my only liabilities, or my debts, are my three mortgages.
That's right. I said three.
Even though I own four properties,
I was able to pay off one of my mortgages and I did do a video about that.
So if you're interested in those details,
I will leave a link above and below in the description.
You can check that out after this video is over.
And then as far as my assets, first off,
I have my four properties that I just mentioned.
So I would take the value of all four of those properties,
how much I could get for them if I was to sell them right now and add it
to the amount of cash that I have in my savings and checking accounts.
I would also take the value if I was to sell everything in my Roth IRA
and in my traditional IRA, then if I was to sell everything
in my brokerage account, I would take that value and then I would
take the value of all of the assets that I own, like my car.
And I'm not really going to include all
of the smaller assets, even though I do have some pretty cute
clothes I think I could sell or some pretty cute earrings I could sell as well.
But I've just decided to include the larger assets that would bring in more
money than just a few dollars or something.
So I would take the value of all of those assets after selling all of them.
And then I would subtract out my three mortgages that I talked about
and that would be my net worth, which is over a million dollars now.
And to give you a specific math example, let's say I added up the value of all
of those assets and it came to one million, six hundred and thirty thousand dollars.
And then we'll say my three mortgages are worth five hundred and thirty thousand dollars.
So I would take the value of all
of my assets minus the five hundred and thirty thousand dollars,
all of my debts, the things that I owe or my liabilities.
And then we would have a net worth of one point one million dollars.
And that's just a personal example.
So if you are going to calculate your net worth, I want to talk about different
things that could be included in that so that you're not forgetting anything.
There are quite a few popular liabilities that people have.
There is credit card debt.
So if you have a huge amount that you're paying down on your credit cards,
you want to include that into your liabilities or your debts.
If you have an auto loan,
if your car isn't fully paid off, you'll want to include your auto loan.
If you've taken out student loans,
you'd want to include that student loan debt.
And if you owe any debts to friends or
family, you'd want to make sure and include that.
Or if you have a personal loan that you've taken out or a home equity line of credit
that you're using, you'll want to include those debts as well.
And then let's just talk about a few other assets that people might have.
You could be really into art and have really expensive art pieces,
or maybe you really love jewelry and you spend a lot of money on jewelry.
I know for me, I really love earrings
a lot, but I do not spend a lot of money on my earrings.
Another one could be if you are a coin collector, my dad is huge into coin
collecting, so he has quite the collection that is worth quite a bit of money.
So if you have any type of collectors'
items like that, then you could include that in your assets.
Or maybe you invest in gold and you have some gold bars or gold certificates,
then you would include that in your assets as well.
Once you've taken into account all of your assets, then you'll take that value amount
and minus all of your liabilities or all of your debts, the things that you owe.
And that would be your net worth
number. Now that we have established how to calculate your net worth and you
have that number, let's talk about when and where to track your net worth.
You can actually start tracking your net worth right now, immediately, so that you
can continue to improve your net worth over time.
Personally, I use a spreadsheet and a free app.
So if you want to use a spreadsheet or
even a Google sheet, then you can just write down all of your assets.
The
value of each asset and all of your liabilities, the value of each one
of those, once you have the value of all of those listed, you can total up your
assets and then minus out the total value of your liabilities.
And you can have that number just
at the bottom of your spreadsheet or even at the top if you want to.
Mine's at the top and then you can track that each month.
That's how I like to do it in my spreadsheet.
But since I am using an app as well, I use Personal Capital.
There's also Mint.com.
They're very similar, but with Personal Capital,
I like that one better because of their retirement section.
They have ways to analyze your fees and you can put in your funds that you're
invested in or your stocks. Anyway, all of the different things.
But you can use this free app and you can
hook all of your financial accounts to this app.
So all of your checking, your savings, your credit cards, your mortgages,
any loans that you might have, your 401K IRA, any retirement accounts,
anything to do with money, you can hook this to Personal Capital
and they will track your net worth for you, which is really nice.
So I check that app pretty often.
So I am actually keeping an eye on my net
worth, but I only update my spreadsheet once a month.
And if you are interested in using Personal Capital,
I do have a referral link, so I will leave that below in the description.
And if you use that, you can get twenty dollars free to Amazon
once you hook one of your retirement accounts to it.
Now let's talk about why it's important or
maybe not important to track your net worth.
Your net worth will vary greatly depending
on where you have your money invested or what assets you have.
For me, since I have a lot of my money invested in real estate,
if the real estate market was to take the value of my properties were to go down
drastically, then my net worth would drop drastically.
And on the other side, if I had a lot invested in the stock
market and the stock market were to crash, then my net worth would drastically drop
because they would have most of my investments in the stock market.
So while I like tracking my net worth,
I know it's not the end all be all because there will be fluctuations in the market,
in the stock market and in the real estate market.
But there are a few really great reasons
to keep an eye on your net worth to track that amount over time.
And I found this article on Investopedia Dotcom that I want
to share with you because they break it down really nicely.
So they say on here why your net worth is important.
So when you see financial trends in black and white on your net worth statements,
you're forced to confront the realities of where you stand financially.
Reviewing your net worth statements over
time can help you determine, number one, where you are currently.
Number two, how to get to where you want to be.
So this can give you encouragement while you are trying to increase your net worth
over time and then also helps you spend wisely.
Knowing your net worth can help you
identify areas where you spend too much money.
Just because you can afford something doesn't mean you have to buy it.
And before buying something,
consider if it is a need or a want before you actually make the purchase.
So if you can see all of your purchases
in one place, if you're tracking your net worth, then you can start to see where
you're spending your money and where you can really make changes.
Also, they mention pay down debt.
So you are reviewing your assets and your liabilities like we talked about.
And that way it can help you develop a plan for paying down debt that you have.
So you can see all of your debts in one
place and you know exactly how much they are and what the payments are each month.
And then you can decide, OK, well,
where can I take money from somewhere else and put it toward my debt?
Because you can see a clear financial picture.
Also, they talk about how it helps you to save and invest your money.
Your net worth figures can motivate you to save and invest money.
If your net worth statement shows that you are on track to meet your financial goals,
it can encourage you to continue what you're doing on the opposite side.
If your net worth indicates room for improvement.
For example, if you continue to increase your debts and you're not really
increasing your assets, you can definitely see where you need
to improve and then it can provide a needed spark of motivation to take
a more aggressive approach to saving and investing your money.
Those are a few benefits to tracking your net worth over time.
And if you've heard of the FIRE community,
financial independence, retire early community, I am a part of that.
And we focus on becoming financially free
or financially independent as soon as possible.
And that's not so that we can just quit
our job and lounge around on the beach all day.
But it's so that we have the option to quit working.
If we wanted to.
If we weren't happy at that job or if we were to get laid off,
then we wouldn't be in financial ruin or have financial strain on us.
So part of that is tracking our finances, so we like to know our net worth and more
specifically, we like to know how much we actually have invested because we're
working toward a specific financial freedom
number.
And if you want to know how to figure out what it would take to retire,
then I did a video for you and I will leave a link below in the description
and up above so you can check that out later on.
But it's nice to see your net worth and watch that trend over time.
Is it going up or is it going down or
where do you need to make changes or improvements?
Because if you are consistently focusing on where you can make improvements,
then you're not so concerned about the drastic changes that might happen.
And for me, being able to track my own net worth, I've been able to see where I can
make improvements or changes in my spending habits and really increase
my assets, focus on investing instead of spending money.
And by doing that, I was able to increase my net worth to over a million dollars.
Now tell me in the comments,
if you already know your net worth or if you are going to calculate your net worth
now. I am curious to know,
and if you found this video helpful, please hit that like button and share it
with someone else who it needs to understand net worth.
And hit the subscribe button to subscribe to my YouTube channel and hit the little
bell to get notified on when I post new videos.
Thanks so much for watching.
I'll see you in the next video.