Chapter 1. Calculate Your Net Worth
For many people, stepping on the scale at the doctor's office can inspire a touch of anxiety.
If you've been eating well and finding time to exercise, the weigh-in can be proof that you're on the right track. But if you've just returned from a vacation where fried shrimp and umbrella drinks were the norm, the scale lets you know you've got some work to do.
Calculating your net worth—summarizing your assets and liabilities, which is the first step in any financial plan—is a lot like stepping on the scale in your doctor's office. (I promise, this is the last time I'll bring up the doctor. But the analogy is particularly apt here.) Your net worth statement (sometimes called a personal balance sheet or statement of financial position), like the scale, provides a clear-eyed look at how well you're doing. Sometimes your net worth isn't pretty—particularly when the stock market isn't cooperating or you've been hit with unexpected expenses. But if you have been watching your expenses, saving regularly, and taken care in your investment selections, it can be pretty gratifying to see your net worth trend up from one year to the next.
Your net worth statement is only a snapshot of where your household's finances stand at a given point in time; your real net worth fluctuates every day, depending on the value of your assets. But that snapshot can go a long way toward helping you identify red flags, plot what your financial priorities should be, and make sure ...