Why You Should Calculate Your Net Worth Every Year

ID-100220258Every time we turn the corner into a New Year, everybody starts setting goals and creating their resolutions for the year. Love it or hate it, it’s just something that we do.

January is a great time to think about your goals since December 31st is a hard cut off for a lot of different reports including your investment statements. It’s a perfect time to get a snapshot of where you are from a business and financial perspective by calculating net worth.

How To Estimate Your Net Worth

There are three things you need to do to be able to properly estimate and calculate net worth:

  • Collect all of your investment statements and bank statements
  • Figure out what assets you have at December 31st
  • Establish exactly what your liabilities are by December 31st

That should give you a picture in time so that you’re able to easily compare your net worth to the previous year. It’s important to do that because the accumulation of wealth shows up as net worth in an individual’s balance sheet.

Corporations have balance sheets, businesses have balance sheets and individuals should have balance sheets as well. Those balance sheets reflect assets minus liabilities, giving you your net worth. As long as that net worth is moving up, the odds are that you’re saving or creating wealth for the future.

Create A Snapshot In Time

When you compare your December 31st net worth with the previous year, what did you save? What did your investments return during the year?

This will provide you with a consistent snapshot from year to year and will prepare you for when your advisors inevitably ask for your net worth statement if you decide to do any financing or investment planning throughout the year.

Check Your Credit Score

Another thing to get in the habit of doing when preparing your net worth statement is to check your credit score. You can get your credit score once a year for free by requesting it in writing from the credit bureaus, click here for instructions on how to do it.

You can see whether there’s been mistakes in your credit rating (it’s possible to correct them), you can see how your score is moving to help measure your progress. If it’s going down, why is it going down? If it’s going up, why is it going up?

In my opinion, this is a key year-end ritual to ensure you stay on track in the New Year.

Review Your Goals

At the end of the day, this is all about reviewing where you’ve been, where you are now and where you want to go in the future. You get that snapshot in time and use it as a benchmark against yourself.

Take the time to review your goals from the previous year and rate how you did at achieving them. It’s one thing to set goals, it’s another thing to look at them and see if you actually achieved them by rating your progress. In the words of Henry Ford, if you do what you’ve always done, you’ll get what you’ve always got.

Figure out what you’ve been doing that’s working and keep doing it, figure out what’s not working and stop doing it. It’s simple stuff at its core, the problem is that most aren’t doing it.

What have you learned and gained by calculating net worth and comparing to previous years? I’d love to hear your experiences in the comments below.

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