Arlene Dickinson, the Finance Ambassador for the Better Choice Challenge, taught us the importance of calculating our net worth, which is the 10th Better Choice Challenge.

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Though we might associate the idea of 'net worth' with big business and multi-millionaires, only a very small percentage of people have net worth in the millions. In fact, less than 3% of people have a net worth over $1,000,000.

Net worth is a number we all have - it's essentially a grand total of all your assets minus your liabilities.

 

It might sound like a conceptual idea - but calculating your net worth is NOT difficult. It only requires some basic financial information regarding the things you own and the debt you owe. Once you've got the information it'll take you less than 20 minutes to find out your Net Worth.

 

1. Start with your largest assets. For most people this includes their home and vehicles. Make sure you use accurate estimates.

2. Next, gather your latest statements for your liquid assets. This includes checking and savings account, cash, or other investments such as retirement accounts.

3. Finally, you're going to want to list personal items that might be of value. This includes jewelry, coin collections, art, musical instruments, etc. You don't need to list everything, focus on items worth $500 or more.

4. Now take all of the assets you have listed in the first three steps and add them together. This number represents your total assets.

5. Next you will list your liabilities. Start with the major outstanding liabilities such as the balance on your mortgage or cars loans.

6. Next, list personal liabilities such as credit cards, student loans, or any other debt you owe.

7. Add up all of your liabilities to come up with a total.

8. Finally, subtract the total liabilities from the total assets and you will have your net worth.

 

As important as knowing what your net worth is, the PROCESS of calculating it is equally important. Putting all of these numbers down on paper will make you aware of what you have and what you owe - no surprises - knowledge is power when it comes to finances. And as relevant as your 'net worth' number is, as important are the numbers you'll determine as your assets and liabilities. Acknowledging ALL of your debt and knowing what your assets are is a great first step towards improving your finances.

 

These financial snapshots provides you with the opportunity to improve your financial situation over time. This can be tracked on a yearly basis to help you understand where you are going financially.