A few weeks ago I posted a video on YouTube and on the www.kirkgmeyer.com blog site that dealt with debt reduction. If you missed that video, feel free to see the archives to the right of this post or visit my YouTube channel to see the video at http://bit.ly/2Esb3dE. This week we will discuss a new video that was posted as a follow up to the Debt Reduction video, and this video is about Net Worth Calculation. This is the second video that will be in the Finance Series on my YouTube channel with the next video being on Budgeting. The reason for the order in the series is a little different but is the one that I decided to follow, and I will try to explain that here.
In order to calculate your net worth, you want to know what your assets and your liabilities. An asset is anything that you own that is of known value or is something that you can convert into cash if needed. Not all assets are considered liquid, which means it can be easily converted to cash with little loss in the value of the item. Items such as a house should sell for their approximate value, but they tend to take a lengthy period of time to convert into cash. A typical closing on a house can take thirty days if not longer. While stocks or bonds that are owned, have a known value and can be converted to cash in a short period of time, in generally in a business day or less. That is one component of your net worth.
The other component is your liabilities. A liability is some form of debt that you owe someone or a company. Most of us have a mortgage if we are buying a house in which a bank or other financial institution holds the debt on your house. Another common type of liability or debt is credit card debt which it seems most people have in some form or another. These are both common types of liabilities and are common types of debts most people are aware of. And after you use the Debt Reduction spreadsheet, you will have a list of your liabilities ready and handy to fill out the Net Worth Calculator.
A step in the Debt Reduction video that is recommended is to have a budget to get your initial snowball amount. This can be estimated for the rough snowball amount as you need to have all of your debts together in order to calculate your net worth. Now you have listed all of your debts on the Debt Reduction Spreadsheet, and you are now also able to calculate your net worth with a good degree of accuracy. In the next step and video, we will be looking at budgeting and how to properly budget your income and relate that to your debts in a manner that coincides with the Debt Reduction spreadsheet.
So in preparing for making a detailed budget, you will already have your debts or liabilities and the amounts you owe for them and the monthly payments due. You will also now have your assets that will be used in conjunction with your liabilities to come up with your net worth. The second piece of accounting is the fact assets equal liabilities plus your net worth.
In a few weeks, I hope to have posted a video on how to use Simple Planning’s Daily Budget spreadsheet in conjunction with my Debt Reduction spreadsheet and the Net Worth Calculator spreadsheet. Simple Planning has an excellent collection of financial spreadsheets available from http://bit.ly/2q7dbjS.
If you have any questions or comments, feel free to email me or leave a comment here.
