Wednesday, March 5, 2008

Calculating Net Worth

Honestly, determining your financial status is a key step to financial life improvement.
Having your goals set and and all it planned is not enough. Having goals is a must, but in order to pursuit them, you need to clearly see your budget and then adjust your goals to them, to be more realistic, at least for the short term. So, in order to do that you must calculate your Net Worth, that's why you must follow these steps:

  1. Write down your cash balance in the beginning of the year.
  2. Add your expected income for the year. Check your most recent income tax return so you are sure to include all sources of income.
  3. Subtract your estimated savings and investments
  4. Subtract your annual expenses. Consult your checkbook to make sure you include all expenses. The amount remaining is your cash balance at the end of the year. If it is negative, you'll have to go back and see if you can eliminate some unnecessary expenses.
  5. List all of your assets. These are the things you own, including your investments, home, life insurance, etc.
  6. Subtract your liabilities; that is, everything you owe. Liabilities include your mortgage, charge account balances, loans, taxes, overdrafts, etc. The difference between your assets and liabilities is your net worth. If you calculate your net worth annually, you can monitor the growth in your personal wealth.
Having your net worth calculated helps you determine your current financial status, and coupled with financial goals helps determining the structure of your portfolio.

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