The number one question people ask me about getting their finances in order is: Where do I start??
It can seem daunting trying to figure out a part of your life you may have been ignoring for years… but remember, making a financial plan isn’t rocket science, or plant science, or any kind of science really. It’s about making a map, that helps you get where you want to go.
Figuring out what you want (where you want to go) is super important, but you can’t plan a journey without knowing where you’re starting from.
In other words… you need a point A in order to make a map to your point B.
So where are you?
In finance land, a big part of that question is answered by figuring out your net worth. In this case I’m not talking about the floofy holistic net worth that I talk about on the 1st of every month. I’m talking brass tacks. Money styles. Net worth classic.
Figuring out your net worth is pretty easy (although often depressing). It’s simply:
AHHH. A formula… KILL IT. Chill out guys, it’s barely math… it doesn’t even have numbers in it yet.
You CAN handle the truth!!!
Your net worth can be intimidating because it’s one of those cold hard facts. But just because you’ve been ignoring it, doesn’t mean that it still isn’t a fact.
Money has its greatest power over you when you’re not facing it head on. It’s just stewing in the back of your mind not letting you sleep.
Facing your financial situation, completely, honestly, means that you can start dealing with it.
So… when you’re making your net worth, be honest. Don’t over blow the value of things, or leave some debt off the list. Don’t ascribe any judgment or shame to your net worth. It is what it is. Maybe it won’t be as bad as you think.
Take a deep breath and prepare to look at yourself in the mirror (financially) naked.
Getting to know your ASSets.
Assets are all the things in your life that are worth money. At this point we’re not worried about whether you could probably get 20 bucks selling your coffee table on craigslist. It’s more about the bigger stuff in your life with actual value.
Having a hard time figuring out if you should count something? Think about it this way: If you badly needed money… could you sell it? If you could… it’s an asset.
Getting to know your Liabilities (debts)
This part can be a bummer. It’s really nice to keep all the debts in their separate boxes. It diminishes their power. But it also diminishes the effect they have … to kick your ass in to taking care of the problem. So let’s throw them all together into one potentially scary number.
Get to know your Net Worth
Assets – Liabilities = Net Worth.
So there you have it. A number. So what does it mean?
Well, I can tell you when I first crunched the numbers, mine wasn’t pretty. It also wasn’t positive. It took me quite awhile to get on the happy side of my net worth.
Seeing all my numbers boiled down in one place helped me to understand that even though I had a little money in the bank, I wasn’t living within my means. What I was doing wasn’t sustainable. It gave me a place to start.
So what’s your ‘naked truth’? Just because you’re not looking in the mirror doesn’t mean that it’s not the truth.
You can’t start to change something until you’ve looked at the facts. Once you’ve accepted the way things are, then you can start working on how to change it.
Strip down, and take a gander… and then… get to work!
Very good blog post. I absolutely love this site. Keep writing!