Keeping it Simple
There are many, many ways of measuring success. For some folks it means a mention in People magazine while other folks want to be appointed to the Supreme Court.
Most of us will never achieve either of these lofty goals but we all should want to know if we are making real progress in becoming financially secure. That is a real measure of success. There are many ways of judging financial success. Some people hope to get on Forbes list of the world’s richest people while others just want to be out of debt. It is fine to have a personal measure so long as you always look at it the same way.
Accountants talk about balance sheets and cash flow statements and all sorts of things that most folks can’t begin to compute or even fully understand. That leads too many people to guess about how well they are doing.
So what should a regular person do to measure progress? I suggest figuring out your net worth each year and seeing if it increases. If it does, that’s a good year. If it doesn't, that means making changes. All "net worth" means, is that you have added up everything you own and subtracted everything you owe. The result is your net worth. It is called "net" because it doesn’t matter how many dollars you have; just the dollars that are really yours. The dollars you owe to someone else aren’t yours.
Since I don’t want you to have to hire an accountant, I will provide you with a simple form for figuring your net worth.
The Budget Doctor’s Net Worth Form
| I Own |
And Could Sell it for
|
I Owe |
This Much |
| A House |
$ |
A Mortgage |
$ |
| Vehicles |
$ |
Vehicle Loans |
$ |
| Stocks |
$ |
Credit Cards |
$ |
| Bonds |
$ |
Personal Loans |
$ |
| Tax Refund |
$ |
Taxes Due |
$ |
| Jewelry, etc. |
$ |
Other Debts |
$ |
| 401K |
$ |
|
|
| Other Stuff |
$ |
|
|
| Total |
$ |
Total |
$ |
My net worth is: the total of what I own, minus the total of what I owe, or $________________
This is a very simplified form. You could add in the cash value of life insurance and the amount in your checking account and other stuff, but you don’t need an exact number; you need a number that you can compute every year in less than 15 minutes. You may owe more than you own. That is called negative net worth. You can still improve your net worth every year by making that negative number smaller.
Financial security is a long slow journey and you should measure your movement at least once a year. Just make sure you are headed in the right direction.