Updated May 1, 2021
One you’ve set your financial goals, you can move onto Step 2 of the Rat Race Off Ramp: Your Financial Snapshot. If you need to catch up, take a look at the overview for the 6 Steps of the ‘Rat Race Off Ramp’ and a deep dive into Step 1: Set YOUR Goals.
What is a financial snapshot?
To get straight to the point, a financial snapshot is checking your net worth at a specific point in time. Your net worth is your total assets minus your total liabilities (debt). Your net worth is constantly changing, including occasionally going down, but, in general, your net worth should increase over time. As you start on this journey, you need to know where you are starting (your net worth) in order to get to where you’re going (your goals). I use liquid financial assets and real estate as assets when calculating our net worth. Liquid financial assets are any money you can liquidate into cash quickly, so that would mainly apply to stocks, mutual funds, certificates of deposit, savings accounts, and checking accounts. Since the goal is to take the ‘Off Ramp’, anything you wouldn’t liquidate or use as collateral for a loan doesn’t contribute meaningfully towards this net worth calculation. I don’t use our cars or collectibles that I don’t plan on selling in our net worth calculation, since they are not assets we plan on liquidating to help us reach our ‘Off Ramp’. If you are on the fence about some things you own, add a separate category for those items. When calculating your net worth on illiquid assets, like real estate, collectibles, and vehicles, it is better to use a more conservative (lower) value, so you don’t overstate your net worth.
Below is a screenshot of an example of a basic Net Worth Tracker I put together in Excel. You can click on the screenshot for a larger, more legible image. If you’d like the spreadsheet, send in a comment requesting the ‘Net Worth Tracker’ or sign up for the weekly email and select ‘Net Worth Tracker’ before you submit the form. If you’ve already signed up for the weekly email, you’ll receive the most up to date ‘Net Worth Tracker’ with this week’s weekly email.
What are assets?
Assets are anything significant you own that has a positive value. Savings and checking accounts, certificates of deposit (CDs), real estate, investments (stocks, bonds, mutual funds, etc.), vehicles (cars, trucks, boats, motorcycles, etc.), retirement accounts, and collectibles (art, coins, heirlooms, musical instruments, etc.) are all examples of assets.
What are liabilities?
Liabilities are anything you owe, decreasing your net worth – essentially any debts you have. Mortgages, car loans, personal loans, credit card debt, student loans, and any other loans are all included as liabilities.
Calculating Your Net Worth:
Net worth = Total Assets – Total Liabilities
Everyone’s net worth will be different. Some of you may be pleasantly surprised with your current net worth, while others may be disappointed. Net worth can increase as you grow your assets and reduce your liabilities. But remember, if this is the start of your journey, this is the time to decide to make changes to get you moving in the right direction. Keep working towards the goals you set in Step 1, and keep working with me through the rest of the steps to figure out your path from your current net worth to achieve YOUR goals. Next week I’ll cover Step 3: Dive Into Your Income and Expenses and Step 4: Tackle Your Debt.
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