As an accountant, I like to stress this concept first because it is the foundation of accounting. What is accounting if not the language of business? It goes as follows:
It's simple. What you have minus what you owe equals what you're worth. Why is this important?
1) Starting Point - The first benefit to understanding your net worth is that it is the foundation for developing a financial strategy. Pretty simple: if you have a negative net worth, your financial plan will be based on paying off the debt currently outstanding and increasing that net worth. If you have a positive net worth, your financial plan will be based on maintaining your current financial condition and increasing that net worth.
2) Goal setting - Once you've identified your starting point, you can define your goals. Ask yourself this basic question: Where do I want to be in 5, 10, and 20 years? Setting a financial target, no matter how outrageous it might be, allows you to work towards something. You're more than likely going to benefit from having a plan than not having one...no statistics to back that rationale up here, just simple logic. Regardless, set some short term and long term goals. For instance, at the beginning of each year, I like to set a goal for how much I'd like to have in my savings account at the end of the year. Maybe you have some student loans that you'd like to trim down. If so, how much do you want to pay off by the end of the year (short-term), and when do you want to pay the entire debt off (long-term)?
3) Budget creation - Lastly, once you've set your goals, create a budget as a plan for how you're going to achieve those short-term and long term goals. Create a short-term budget and a long-term budget to coincide with those goals. There are many different types of budgeting strategies, but that's for another time!
Remember, every book on investing, financial planner, or advice blog will tell you the same thing: it's never too late to start! Here are two simple online tools to calculate and illustrate your net worth:
1) Starting Point - The first benefit to understanding your net worth is that it is the foundation for developing a financial strategy. Pretty simple: if you have a negative net worth, your financial plan will be based on paying off the debt currently outstanding and increasing that net worth. If you have a positive net worth, your financial plan will be based on maintaining your current financial condition and increasing that net worth.
2) Goal setting - Once you've identified your starting point, you can define your goals. Ask yourself this basic question: Where do I want to be in 5, 10, and 20 years? Setting a financial target, no matter how outrageous it might be, allows you to work towards something. You're more than likely going to benefit from having a plan than not having one...no statistics to back that rationale up here, just simple logic. Regardless, set some short term and long term goals. For instance, at the beginning of each year, I like to set a goal for how much I'd like to have in my savings account at the end of the year. Maybe you have some student loans that you'd like to trim down. If so, how much do you want to pay off by the end of the year (short-term), and when do you want to pay the entire debt off (long-term)?
3) Budget creation - Lastly, once you've set your goals, create a budget as a plan for how you're going to achieve those short-term and long term goals. Create a short-term budget and a long-term budget to coincide with those goals. There are many different types of budgeting strategies, but that's for another time!
Remember, every book on investing, financial planner, or advice blog will tell you the same thing: it's never too late to start! Here are two simple online tools to calculate and illustrate your net worth:
1) CNN Money (http://cgi.money.cnn.com/tools/networth/networth.html)
2) Investopedia (http://www.investopedia.com/net-worth/demo/)
Calc-u-later!
-Ben Wyatt, Parks and Recreation
Calc-u-later!
-Ben Wyatt, Parks and Recreation
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