It does not matter how much money you have today; you still must know the details of what you are worth. Understanding your financial situation can help you develop a retirement plan, pay down debt, draft a comprehensive estate plan and live with financial independence.
To figure out your net worth, you should calculate the amount by which your assets (what you own) exceed your liabilities (what you owe). If your assets are greater than your liabilities, you have a positive net worth and vice versa.[i]
Doing this can provide you with valuable insight into what you can do to continue the plan toward financial confidence, or maybe it is an eye-opener to overspending. This knowledge may allow you to see where you can adjust toward more beneficial financial decision-making.
What are assets?
Assets include real estate, bank accounts, investment instruments, retirement funds, brokerage accounts, and personal items like your car, boat, airplane, jewelry, or other collectibles. Remember to include those intangible assets you might own, like patents, intellectual property, trademarks, etc.[ii]
What are liabilities?
Liabilities include mortgages, credit card debt, student loans, medical bills, personal loans, settlements against you in court, etc. This may also include money you might owe to someone or an organization.[iii]
Because we have so many different assets of varying values, assigning accurate values to your assets can become difficult. It is essential not to inflate your net worth, thus making it more challenging to prepare a strategy that you will be able to follow.
One way to determine the value of what you own is by comparing your assets to similar assets in your area that are for sale or that have been recently sold.
Over the years, your net worth will fluctuate. The immediate increases and decreases are less significant than the trend that develops over time. It is the trend that you want to learn how to expose and observe. As you grow older and earn more income from work and investments, build equity in your home, increase your assets and pay down your debt, your net worth can potentially grow, but it requires discipline, budgeting, and planning. It is never too early to get the guidance you need from an experienced financial professional.
The following tips may help you take your first steps toward addressing your financial goals and needs:
- Pay down debt
- Spend carefully
- Sell unused or unwanted assets
- Recover outstanding payments
- Save and invest wisely
- Work with a financial professional to develop a financial strategy.
- Monitor your progress regularly.[iv]
Part of knowing what you are worth today is being able to build a customized financial strategy that works for your goals at your level of risk. A financial professional can help you make smart decisions by thoroughly understanding your financial situation. Consult a financial professional today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Financial Marketing Solutions.
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[i]What Is Net Worth? – Forbes Advisor
[ii]Assets vs. Liabilities: Examples of Assets and Liabilities - 2022 - MasterClass
[iii]Assets vs Liabilities | Top 9 Differences (with Infographics) (wallstreetmojo.com)
[iv]Get money smart. 25 tips to improve your financial well-being | Consumer Financial Protection Bureau (consumerfinance.gov)