Your entire financial health can be summed up in one number. This number reflects every financial decision you have ever made. That number is your net worth. With such a powerful number, you would expect a long and complicated calculation, but calculating your net worth is easy.

Not only large, well-known companies, but also smaller, lesser-known companies are constantly calculating and tracking their net worth. Companies calculate their net worth a little differently than you do. Companies list everything they own – from company cars to office equipment to unsold products and savings account balances. If they own something, they list it. Technically, this is how net worth is calculated, but you’ll calculate your net worth a little differently.

Instead of listing everything you own – clothes, furniture, and electronics – list only the things you could easily sell without disrupting the process of providing for your basic needs. There are three categories of things you can count toward what you own:

1. Savings/investments. Be sure to include all your savings, checks, emergency reserves, investments, account balances, etc. Use the full balance for each account. Also include any loans you have made to others if there is a good chance you will get your money back.
2. Large assets. This category includes such assets as your house, rental property, cars, boats, expensive jewelry, etc. Value these items at their current market value – that is, list the price you could get if you sold the item today. For example, if you bought a car last year for CZK 1 000 000, do not list this asset at CZK 1 000 000, because there is no way you could sell it for that amount today, the price is likely to be slightly lower. Similarly, if you bought a house five years ago, state the amount for which you could sell it today, not the amount for which you bought it five years ago, because it has probably appreciated in value over those five years. If you are unsure of the value of your house, look online to see what houses similar to yours have sold for, or ask a real estate agent.
3. Other appreciating or income-producing property. Chances are you won’t have anything to list in this category, but if you have assets such as a coin or stamp collection, or receive royalties or licensing fees, list those assets here.

 

Your net worth is a snapshot of your financial health. If you calculated it yesterday or tomorrow, it would probably be a different number – maybe better and maybe worse. The point is that your net worth is constantly changing. If you own more than you owe, you have a positive net worth and are financially healthy. However, if you owe more than you own, you have a negative net worth and are financially unhealthy. The good news is that you can become financially healthy by increasing your net worth in one of three ways:

1. Multiply what you own. That doesn’t mean you should buy everything in sight. Remember that only savings/investment accounts, large assets, or assets that appreciate in value or generate income count toward your net worth. Everything else is just stuff. When you buy an iPod or a new work suit, you are reducing your net worth. Why? You’re transferring cash to something that’s not included in your net worth. If you go shopping and buy 50,000 CZK worth of clothes, you have reduced your net worth by 50,000 CZK.
2. Get rid of debts. You can reduce what you owe by not borrowing money or using a credit card and paying off your debts. Every penny you manage to reduce what you owe is an amount you use to increase your net worth.
3. Do both step 1 and step 2 at the same time. Why do one or the other when you can invest in assets and pay down debt. If you are serious about improving your financial health, this is what you should do!

Because net worth changes over time and because your goal is to increase your net worth, you should monitor and evaluate your progress regularly.  The best and easiest way to do this is during your monthly/quarterly consultation. So, if you are interested in taking specific steps to increase your net worth and improve your future prospects, contact one of our expert advisors who can ensure that your post-career future is no longer a scarecrow, but just another goal for you to reach.