An acquaintance of mine formerly owned a store that sells “country” products like hand-crafted wood furniture, candles, and decor inspired by rural living. Twice a year, she recruited family members and friends to help take an inventory of the entire store. This process involved many hours of walking throughout the building and counting items on shelves and in storage. Even though the computer sales system tracked the quantities of items so at any time she could identify the number of wool welcome rugs with a turkey design, someone would count the rugs on the shelves to ensure the computer was correct.

Like a store, your awareness isn’t complete until you do your own financial inventory. Just like your name or your occupation identifies yourself quickly to other people, your net worth—the sum of the values of all your financial accounts—is a nominal description of your financial identity. The complete calculation of a net worth can be convoluted because there are some important items to include that aren’t easily valued, so we can start with the most important aspects. For our purposes, we will look at the simplest way to determine your net worth.

Everything we need to consider fits within these six categories:

1. Bank accounts: where are they and what are the balances?
2. Investments: Do you have any? If so, what is the current estimated value of what you own?
3. Property: Do you own a house? How much did you buy it for or how much do you think it’s worth now?
4. Mortgage: Are you paying off your house? How much left do you owe?
5. Other loans: Are there any other loans that require your attention?
6. Credit cards: If you have credit cards and don’t pay the balances in full each month, what are the balances?

If you enjoy working on the computer, list all of your accounts in each category into a spreadsheet program like Excel, Google Docs, or the free OpenOffice.org. Spreadsheet software isn’t difficult to use for the purpose of creating these lists, but if you would prefer to work with paper and a calculator, that is a valid choice.

Each row should represent an account or item. For each item, the first column should include the location or type of account and the second column should contain the amount or value. For accounts in categories one through three, enter the values as positive numbers. For accounts in categories four through six, use negative numbers to represent the values.

Add up the numbers in the second column and enter the total beneath. This total, for the purpose of this early stage of financial development, is your “net worth.” Your net worth is just a calculation of what you own subtracted by what you owe at any one point in time. Just like your name or your occupation identifies you, your net worth describes your identity in financial terms.

If you are married or share finances with another individual, you may want to consider the financial accounts belonging to everyone within the household rather than just your own. Whether to do so is a personal choice.

Here is an example net worth calculation in its most basic form. If you’d like to go beyond the basics, read How to Calculate Your Net Worth. In the report below, the red numbers in parentheses are negative numbers, representing amounts you owe to other people or companies.

While your bottom line is a very personal number, don’t take it too personally if you feel unsatisfied. There are often quoted guidelines that describe what your net worth “should” be for your age, but that type of comparison neglects to consider situations which might be unique to your situation. For example, if you’ve spent more time earning undergraduate and graduate degrees before entering the workforce, your net worth may be lower than average once you begin working full-time, but may increase faster if your degrees provided you with opportunities for higher-earning jobs. (Please note that I wrote “higher-earning,” not “better.”)

Resist the temptation to compare your net worth with those of others. Although websites like NetworthIQ exist to make interesting comparisons within and across demographic groups, focusing on other people’s numbers is distracting when all you want to do is control your own finances. Use this number, your net worth, to understand your current position and determine whether it is where you would like to be.

Now that you know where you are financially, you need to look at some more numbers to get a quick feel for how fast your net worth is likely to increase (or decrease). The next part of taking control of your finances is making an accurate prediction based on your income and expenses.

Image source: jenn_jenn

Following the end of each month, I publicly review my personal financial condition. This is the primary reason I do not use my full name on this blog; I’d like to be able to continue sharing the specific details of my finances without providing people who know my in “real life” the ability to search for my identity online and discover Consumerism Commentary. A few friends and family are familiar with Consumerism Commentary, but that’s the extent of my publicity among people who may want to know more about me.

Like September, I ended the month with a lower “modified net worth” than I had when the month began. October was worse that September, however. My bottom line was $162,881 in October, down over 6% for the month.

Continue reading this post for the report including some explanations. Read the rest of this article »

Every month, I publicly review my personal financial condition. If you’re wondering why I post under a pseudonym, Flexo, this is the primary reason. I’d prefer that those who know my in real life, except for a few individuals, are not aware of this information.

Reviewing my finances online helps me be accountable for my choices.

I ended September in a worse position than I started the month, like many people with money in the stock market. Here is a review of my account balances and “modified net worth.” Click on the following report for a larger image. Read the rest of this article »

It’s a long-standing tradition at Consumerism Commentary to review the details of my finances at the end of every month, and it’s that time again. I start with a “net worth report,” a list of my bank account, credit card, and loan account balances, investment values, and some more ethereal numbers like my car’s value and “accounts receivable.”

August helped me out financially for a few reasons, two of which I’ll explain in the forthcoming income and expense report. The third reason is the stock market, slightly up in the month of August, buoying my investments tied to market indexes. In total, my accounts were up 7.7% over the month, the largest monthly increase this year. The bottom line of this report is a modified net worth of $174,669. I call this a “modified” net worth because the report is more complete than a list of bank account balances but not quite as complicated as a net worth figure that a business might use.

For the details, continue reading. Click on the thumbnail for a larger report. Read the rest of this article »

It’s two months later, and I still need to achieve another $50,000 to reach my net worth goal of $210,000 by December 31. With so much of my assets tied into the stock market indexes, it’s no surprise I’m not making the progress I hoped for.

When the company I work for releases its quarterly results, they include a special warning about “forward-looking statements.” The company forecasts its earnings for the rest of the year based on a 2% return in the stock market at large through the end of the year. If the market fares worse or better, they have no problem adjusting expectations. I’ll need to do the same.

Every month, I report my financial status, so here are the numbers. Click on the thumbnail to zoom in. Read the rest of this article »