Frequently, I meet with people who don’t really understand what’s going on with their finances. They’re ready to take charge of their money and make smarter choices, but they’re not clear about how to get going. Which happened this week with I met with Michael and Ella (not their real names).
Calculate Your Net Worth to Get Clear on Your Money
Michael and Ella have actually organized their financial statements pretty well. They’ve neatly filed the paperwork from each of their accounts in its own plastic sheet protector. What eluded this 40-something couple, however, was how to get meaningful information from their paperwork. How to shed light on the question: are we on track to have a comfortable retirement?
So how did we light up their darkness?
We started by Calculating Net Worth – a simple calculation of everything they own less everything they owe. In financial terms we say it’s your assets minus your liabilities.
Within two hours, Michael and Ella had a clear picture of their current financial situation and what they might expect over the next 15-20 years as they pay down their mortgage, replace their car, celebrate the marriages of their children (G-d willing), take periodic trips overseas and continue earning and saving at their current rates.
Of course, those variables and several others will probably shift and change over time, impacting their financial situation. But, calculating your net worth at least once a year is the best way to stay connected with your money and monitor your progress over time.
A Net Worth Statement is your financial scorecard
A Net Worth Statement is your financial scorecard. It lets you know where you’ve been and how you’re doing now. Calculate your net worth to see your financial progress over time, plus what needs tweaking and adjusting.
It’s crucial to make regular changes to your financial plan so you can meet your long term goals.
If you’re in your working years, like Michael and Ella, your Net Worth should grow as you accumulate wealth in anticipation of retirement.
During retirement, Net Worth often declines as you withdraw funds to cover your expenses.
Calculating your net worth regularly shines a financial laser beam on your financial situation.
An added benefit of tracking your Net Worth is that you stay connected with your financial accounts. Your money doesn’t suddenly disappear, which happened to me about 20 years ago when Citibank took over the neighborhood bank where I opened my first account at age 11.
During the takeover, one of my accounts became classified as dormant. Citibank remitted the account to the State Comptroller of California as an unclaimed account. Since I regularly monitor our net worth, I quickly realized something was missing. It was an administrative headache to fill out the paperwork and get the documents notarized. But ultimately, I successfully reclaimed my money.
There are tens of billions, if not hundreds of billions, of dollars of unclaimed property all around the globe. Monitor and calculate your net worth regularly. Don’t let your money get lost.
We’re currently celebrating the holiday of Chanukah – a time of miracles and light, when we celebrate the re-dedication of the Holy Temple in Jerusalem more than 2000 years ago. You can find the full story of Chanukah (also spelled Hanukkah) here.
Years ago, when my three girls were in grade school (they’re all in their 20s now), they put on a play for Chanukah. I still remember one of the songs with its upbeat, catchy tune. The words go like this: “A little bit of light dispels a great deal of darkness.” (מעט אור דוחה הרבה מן החושך)
While that song referred to the spiritual darkness threatening to wipe out the Jewish people, the fact is that a little bit of light always banishes darkness.
Any time and anywhere.
Like when we’re dealing with our money.
It’s December. We’re near the end of the calendar year. Now is the perfect time to shine a little light on your money, dispel the darkness and step into a new year of clarity and confidence with your money.
Shine a little light!