What’s Your Net Worth?
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To work out where you want to go or to design your dream life (lifestyle design is the fancy name for that), you first need to know where you are. That sounds like some tin pot philosophy but it’s true. Or to put it in terms of 7 Habits … ‘First Things First’. Do this one thing to get started …
Calculate your Net Worth
Write down everything you own. All your assets. And all your debts (liabilities). A simple spreadsheet is ideal. Nothing too fancy. This creates your very own personal balance sheet. We’ll go through each type now to help. Hopefully there’s more in the assets column than the liabilities.
If you’ve got debt, is it what Rich Dad would call good debt? (does it put money in your pocket?), or is it bad debt? (something that takes money out of your pocket each month). Often the sort of assets you buy with bad debt will often go down in value as well. If that gets really bad, the value of the debt ends up more than the total value of the asset. Avoid buying this sort of thing.
Your Own Home
Most people agree that owning your own home is an asset. If you’ve read Rich Dad, you’ll know that he dis-agrees. But don’t worry about that. I try my best not to worry too much. Much better to get on with writing it all down. And your own home is the perfect place to start your personal balance sheet.
In the Assets column, write down the full value of the property against the name. In the Liabilities column, put the current value of the mortgage. Set up the columns so that you have a total at the bottom that sums the column (so a total assets cell, and a total liabilities cell). In the row below, work out your Net Worth (or Net Asset Value) by calculating ‘Total Assets’ – ‘Total Liabilities’. This is the all important number you’re going to watch like a hawk. And track over time.
So back to filling in the line items. Hopefully you’ve got your own home in there now, and if that’s going well you’ll have a positive net worth (which at the moment is the equity in your own home).
Investment Property
Repeat the same steps for any investment property you have. On a new line against the name / address, put the total value in the Assets column, and the current value of the mortgage in the Liabilities column. If you have a Buy To Let mortgage, don’t forget you might have added the arrangement fee to the loan, so you’ll owe a bit more than you thought.
Cash
Any savings or significant cash sums that you’ve got stored away anywhere.
Shares, ISAs
Do you have any shares or ISAs? Check their current value and write each down individually in their own row.
Cars
Include any cars you have, at their current value. Webuyanycar will give you a good estimate with just the reg and the mileage. If you have loans on the cars, add this in the Liabilities column. If the loan is bigger than the value, still include both figures. Just bear in mind that this isn’t a great position to be in. Avoid it if you can. Sell up or reverse it if at all possible.
Pensions
If you have a personal or employer pensions (or a SIPP or SSAS), include the total value.
Other Assets
Some of these might feel like assets, or you might not be sure. Don’t worry either way. If it has some value, include it. So what sort of thing are we talking? Valuable watches? (a Rolex, or a Patek Philippe maybe?). Any especially valuable possessions, antiques, classic cars etc. Anything really, that has any real value.
Other Categories
There are quite a few other categories that we’re going to skip over. Things like Life Assurance policies. Sometimes mortgage lenders will want these, sometimes they won’t. So they’re not really worth worrying about at this stage.
Other Debts
If you have any other debts, include these in the Liabilities column. Credit card debt (a balance that you don’t pay off each month), or a personal loan, or a private loan.
Net Worth
By now you’ve hopefully built up quite a list. The total value of all your assets is summed at the bottom of the Assets column, and the total value of all your debts at the bottom of the Liabilities column.
Net Worth = Total Assets – Total Liabilities
Hopefully the current net worth is a pleasant surprise. Whether it’s a good surprise or not, you’ve taken the first step towards changing your future. And now you know where you are.
Save this spreadsheet (or the sheet in it) against the month and year and come back to it from time to time. Quarterly or monthly would be good. At least once a year is a must. When you come back to it, create a new copy of the sheet first and do the updates on the new sheet. That way you’ve got an historic record of the old values, and once you’ve updated the new sheet, you can see your progress.
Don’t miss out on The Property Meetup again! Book here for Thursday 4th May
Happy investing!
Don’t miss out on The Property Meetup again! Book here for Thursday 4th May
