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Money Talks: Net Worth Nattering
Mar. 20th, 2012 08:30 amAh, March, and the first net worth snapshot of the year (I try to do one at the 3 month and 9 month marks, so's not to interfere with taxes and whatnot).
DISCLAIMER: I AM NOT A FINANCIAL ADVISOR, NOR ANY SORT OF TRAINED PROFESSIONAL. I'M JUST SHARING MY OWN EXPERIENCES AND THOUGHTS. TALK TO YOUR OWN ADVISOR BEFORE MAKING FINANCIAL DECISIONS!
Net worth is calculated by adding up everything you've got (investments, saved cash, property-at-current-value, etc) and then subtracting out what you owe (mortgage, credit card balances, loan repayments, etc). It's a quick way to see where you stand, financially.
The story I like most to explain net worth is Donald Trump claiming that the bum on the street had a higher net worth than he did. At the time he had like a gazillion dollars in assets... but he had a gazillion-and-one dollars in debt, too. So he was right - the guy with nothing was worth more.
Even if you're not Trump, a negative net worth isn't - I'm told - unusual, especially if you have a large (new) mortgage on the books, or are young enough to still be carrying student loans/haven't had a chance to build your retirement fund. It's not cause to panic, but it is, IMO, reason to reconsider your saving and spending patterns. If you're in the black, then you're heading the right direction. Which way the trajectory is going (increased or decreased worth) lets you tweak your planning.
Having an IRA (the self-employed's version of a 401k), and not having a mortgage, puts me in the black every year. Adding to it? That's a bit tougher. But taking the snapshot lets me see if I'm making progress. (slow. very very very slow progress. with occasional backslides)
I take a snapshot twice a year, because I'm slightly obsessive about that (as a self-employed professional, I have to be) but once a year is fine, too. Like doing a weekly weigh-in at the same time of day, it shows you any major changes, while ignoring the smaller and perfectly normal day-to-day variations.
The one thing that I haven't figured out how to add to my calculations, though, is the estimated value of my literary estate (such as it is). With 17+ books I hold copyright on, I'm sure it's worth something but that something could range from $1.48 to $148,000. Okay, it's probably closer to $1.48. My usual trick is to average all royalties paid over the past five years, and use that sum, but past performance is no indicator of future success....
DISCLAIMER: I AM NOT A FINANCIAL ADVISOR, NOR ANY SORT OF TRAINED PROFESSIONAL. I'M JUST SHARING MY OWN EXPERIENCES AND THOUGHTS. TALK TO YOUR OWN ADVISOR BEFORE MAKING FINANCIAL DECISIONS!
Net worth is calculated by adding up everything you've got (investments, saved cash, property-at-current-value, etc) and then subtracting out what you owe (mortgage, credit card balances, loan repayments, etc). It's a quick way to see where you stand, financially.
The story I like most to explain net worth is Donald Trump claiming that the bum on the street had a higher net worth than he did. At the time he had like a gazillion dollars in assets... but he had a gazillion-and-one dollars in debt, too. So he was right - the guy with nothing was worth more.
Even if you're not Trump, a negative net worth isn't - I'm told - unusual, especially if you have a large (new) mortgage on the books, or are young enough to still be carrying student loans/haven't had a chance to build your retirement fund. It's not cause to panic, but it is, IMO, reason to reconsider your saving and spending patterns. If you're in the black, then you're heading the right direction. Which way the trajectory is going (increased or decreased worth) lets you tweak your planning.
Having an IRA (the self-employed's version of a 401k), and not having a mortgage, puts me in the black every year. Adding to it? That's a bit tougher. But taking the snapshot lets me see if I'm making progress. (slow. very very very slow progress. with occasional backslides)
I take a snapshot twice a year, because I'm slightly obsessive about that (as a self-employed professional, I have to be) but once a year is fine, too. Like doing a weekly weigh-in at the same time of day, it shows you any major changes, while ignoring the smaller and perfectly normal day-to-day variations.
The one thing that I haven't figured out how to add to my calculations, though, is the estimated value of my literary estate (such as it is). With 17+ books I hold copyright on, I'm sure it's worth something but that something could range from $1.48 to $148,000. Okay, it's probably closer to $1.48. My usual trick is to average all royalties paid over the past five years, and use that sum, but past performance is no indicator of future success....
