The Most Important Number in Your Financial Health
By Glenn S. Ferguson
Apr 27, 2011 - 8:17:10 PM
Just like your annual physical health checkup gives you an opportunity to see the numbers that affect your physical health there are numbers that will quickly reveal your financial health.
But there is a number that is more important than all others and you are about to discover what that number is because if you do not manage this number you will never be able to achieve your most important financial goal - creating wealth.
And looking at your financial numbers will not only reveal this number but also help you understand just how much your current life style is costing you, the assets you have accumulated and provide the footing for building the financially free life you want.
But what is the most important number in your financial health? Well it is your Net Worth.
And while most person view your Net Worth as simply the total value of all your assets minus your total liabilities this number is a lot more than that. As it is the one number that provides you with a clear indication of whether or not you are creating wealth.
So if this number is such an important indicator of wealth creation, how do you know what your Net Worth should be?
Well here is a simply formula that you can use to determine what your Net Worth should be at any point in your life cycle.
Your Net Worth = 10% (Current Age x Current Salary)
If you are 25 and earning an annual salary of $25,000.00 then your Net Worth should be 10%(25x$25,000.00) = $ 62,500.00. And you should be growing this number by 10 percent each year.
Now that you know what your Net Worth should be its time to calculate your actual Net Worth. As calculating your Net Worth will not only gives you an idea of your current financial situation, but it also allows you to organize all your assets and debts in one place which will prove extremely useful as you continue your financial planning.
So here are the five steps you can follow to calculate your Net Worth.
Step 1: Add up your liquid assets
Liquid assets are items that can be converted to cash without losing much or any of its value. Cash is the most liquid asset you can own.These include:
Cash on hand
Your checking and savings account balances
Cash value of your life insurance
Certificates of deposit
Step 2: Determine the value of your investment assets
These are assets whose value is most likely to increase over time and can sell for cash. These may take some time to sell and can lose some of its value, being resold at current market value. i.e., what someone is willing to pay at the time that you want to sell. There may also be various expenses associated with selling.
All stocks at current market value
Real estate investments
Retirement plan current amount.
Step 3: Calculate your personal asset
Personal assets are all your possessions that can be sold for cash.
Value of your automobiles (less any outstanding amount on the loan)
Furniture and appliances (less any outstanding amount on the loan)
Value of property, real estate
Any other possessions that one will pay money for.
Step 4: Assess your liabilities
Liabilities are bills and claims that others have over your money as a result of financial agreements with you. They include items such as:
Credit card debts
Any amounts borrowed against your life insurance or retirement plans withdrawals
Any other debts you owe
Step 5: Calculate your Net worth (Assets - Liabilities = Net worth)
Add up all your assets and deduct your liabilities. Once you are done, you will have an indication of your Net Worth. Usually, this should be a positive number but if it’s not or is extremely low do not worry about it.
As with any physical checkup your answer is an indication of where you are today. And once you know your condition then it is up to you to do the take those financial steps that are necessary for you to improve your financial health.
You will find “
Taking Control of Your Money - keys for keeping more your hard earned money for you" workbook is a useful resource for more complete information and useful methods to help you get started with your financial planning no matter where you are starting from.
Remember, your past is not your future. And by taking steps today, you can use your today to change your financial future.
Copyright © 2011 - Glenn S. Ferguson
Glenn Ferguson is a Speaker, Coach and Syndicated Writer, helping you to painlessly take control of your money so that you can own your pay cheque again to create wealth for you and your family. Email to: firstname.lastname@example.org Web site: www.financialcoachingwithglenn.com Tel: 242-327-2453 Fax: 242-327-2456
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