Real estate investors, like everyone else, should be aware of their net worth. This value is extremly important because it allows us to gauge if our complete financial value is increasing or not. The average American doesn’t know how to save money, and typically has a very low net worth; many people even have a negative net worth! While it may seem obvious to many of us, the average guy simply can’t put a cap on wasteful spending (going out for drinks, buying cars that lose value, etc.) in order to buy assets that actually go up in value (like real estate, securities, etc.), and thus increase their net worth.
Simply put, net worth is your total assets minus your total liabilities
How to Determine Your Net Worth
The first step in calculating your net worth is to determine the total value of all of your assets. Add the value of the following:
- Liquid Assets: cash, checking & savings accounts, money market accounts, CDs, savings bonds, cash value of insurance policies
- Securities: (use current market values) stocks, bonds, mutual funds
- Non-Marketable Investments: annuities, IRAs, tax shelters, pension plan equity
- Hard Goods / Durables: cars, bikes, motorcycles, mobile homes, furnishings, furniture, electronic and other equipment, collectables, jewelry, furs
- Loans Receivable: money owed you
- Real Property: house, condo, rental property, commercial property, land, other real estate
Tally all of your liabilities . . . I know this part is much scarier for many of us!
- Credit Cards: Determine the balance due on all of your cards
- Credit Installment Plans: Determine the remaining balance on payment plans for vehicles, furniture, equipment, mobile homes, home improvement loans
- Cash Loans: the value of any cash loans outstanding
- Insurance Policy Loans: any loans against your insurance policy
- Any Notes Payable
- Taxes Due: on income & property
Now, just subtract the liabilities from the assets and you’ve got your net worth.
You can use our net worth worksheet to help organize your work.
Note: By using computer software like Quicken or Microsoft money, you can make this task much easier. You can even watch your net worth on a month to month or week to week basis with very little work. I highly suggest using one of these to do your bills and calculate your assets and liabilities!