We approach the turn of the year,
and I have resolved not to make this post about New Year’s Resolutions. How boring that would be anyway. Losing weight and personal finances seem to
be the most popular topics for such resolutions, and the media are already rife
with suggestions along those lines.
No, instead I will just urge you
to take a single action this week. It
need not be something you do throughout the year. It will only require a few minutes of your
time; and if you’ve had to cancel your holiday plans thanks to the pandemic,
this is a great way to fill up some of the newly unoccupied time.
Figure out your net worth.
That’s it. Essentially, and figuratively, just take a
snapshot of your financial situation. It’s
as simple as:
Assets
(cash, bank accounts, 401k balance, value of house/belongings, etc.) Minus-Liabilities (car loans, mortgage
balance, school loans, etc.) Equals=
Net Worth
Instead of waiting for a
statement from the investment company or bank, I’ll go on their websites to
obtain my current balances. For my home’s
value I’ll use the estimate from Zillow.com
Your creditors likely also have your current balance available to you
online.
The bottom line might be
discouraging or surprisingly encouraging, but it will always be informative. And taking this snapshot once a year—ideally at
the same time of year—gives you a sense of the direction of your financial
life. Are you doing better than last
year (i.e. higher net worth)? Worse
(lower net worth)?
It is not uncommon for people
well into their forties or fifties to have a negative net worth. Large mortgage balances and leftover school
loans or new ones taken on behalf of a child in college are the usual culprits
for that situation. Unfortunately, many
people carry this situation well into their later years and on into retirement. That doesn’t necessarily spell financial
doom, but it’s not ideal. If the negative
value is not decreasing steadily year by year, it should serve as a call to
action.
Of course, sometimes even a financially
responsible person sees his net worth decline in any given year. For instance, I’m in my first year of retirement,
no longer have an income, and have started drawing down my savings. I may well show a decline in my net worth, although
I still have some aggressive investments that grew during the year, and Zillow
has vastly increased its estimate of my home’s value; so I will be curious
exactly where I stand when I do my next calculation. So you see that sometimes the bottom line is
affected by the current market and other factors out of your control. Take that into account before you panic or
perhaps get overly optimistic over your results.
I’ve begun going through this
exercise December 31 of each year. I don’t
necessarily decide on a specific course of action or make a New Year’s
resolution based on the outcome, but it is interesting to see how my life has
(hopefully) progressed financially over the last 12 months.
Or maybe I’m just a personal
finance nerd. Nonetheless, I hope you
will try this, at least once.
Thank you for checking my website
and reading my blog. I plan to make some
improvements to the site in 2022.
Happy New Year! God bless you.
Until next time,
Roger
“Be sure you know the condition of your flocks, give
careful attention to your herds; for riches do not endure forever, and a crown is
not secure for all generations.” Proverbs 27:23, 24 NIV*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV® Copyright © 1973,
1978, 1984, 2011 by Biblica, Inc.™
Used by permission. All rights
reserved worldwide.
