What Are Your Worth?
Building a responsible financial plan starts with measuring your net worth.

hen was the last time you checked your financial health? These days, it pays to be on top of it. You can make an accurate assessment with a statement of net worth, which describes what you own minus what you owe.

Calculating your net worth on a regular basis is necessary for managing your money effectively and planning for your future goals. As you get closer to those goals-say, buying a larger home or saving for your children's education-you can track your progress. A measure of your net worth also helps you make other important decisions, such as whether or not to boost insurance coverage to protect your house, car and other major assets.

What goes into a statement of net worth? It's straightforward. The first step can bring a sense of order to your finances: Put all the numbers down on paper-your assets, or what you own, in one column, and your liabilities, or what you owe, in another. Read on to understand the basics of each category.

Your assets
Think about what you own of value: your home or your car, for example. Some advisers caution against including these assets because you're less inclined to sell them today to raise cash. These are often dubbed “fixed” assets, because they are unlikely to be converted to cash. Whether to include them or not is a judgment call; after all, you can borrow against the value of the equity in your home.

To get a handle on the value of your house, check around the neighborhood for recent home sales. Consider the different features of your home and your neighbors' houses that have sold in the past few months. Also, be sure to subtract 7% from your conclusion. That's the real estate industry's rule of thumb for brokerage commissions and other costs of selling a house.

To find your car's estimated value, visit Web Carbook, which you can access at www.navyfcu.org. Other assets can include retirement investments: 401(k) accounts, IRAs and pensions. Keep in mind that these can't be converted into cash easily without a substantial penalty.
Now, consider your “current assets,” or those that are quickly converted into cash. Look at bank or savings accounts, as well as any stocks, bonds and mutual funds. Check around your house. Even if you aren't an expert in art, you can probably recall what you paid for your artwork, jewelry and collectibles.

Some of your household assets may have more sentimental than financial value, and therefore fall into the same category as the house. You wouldn't dream of selling them to raise cash tomorrow. Still, you want to include them, particularly if you are thinking about insuring them. Finally, be sure to include the cash value of life insurance.

Your liabilities
Your liabilities are your debts-what you owe on your mortgage, car loan, student loans, credit cards and IRS installments. These do not include regular outlays like utility charges and insurance premiums.

For most people, it makes sense to distinguish between current liabilities-debt payments that have to be made within the next 12 months-and long-term liabilities. These are the debt payments that you'll have to meet sometime after the current year. An example of long-term liabilities would be debts from education loans that you do not have to pay until you finish school.

When looking at what you owe, don't forget your IRS and credit card debts. These usually carry hefty interest rates, which, unlike the interest on your home mortgage, are not tax-deductible.

Doing the math
To figure out your net worth, subtract the figure for total liabilities from the figure for total assets. According to the Federal Reserve Board's 1998 Survey of Consumer Finances-the latest available figures-the average American household had a net worth equal to seven times its debt load.

For most Americans, net worth increases with age. If yours doesn't, check to see if you have too much debt or if your assets simply are not performing as you had expected.

This doesn't mean, of course, you should dump stock that has performed well over the years if it happened to dip in the last month or two. But it might mean you should keep an open mind about other options. Financial advisers often encourage diversification, or spreading your investments across different areas of the market, to buffer them from market swings.

Now, make your adjustments. Think of ways to reduce the cost of your debts and spending. This is critical at a time when your savings might be low. It may mean cutting up your credit cards and eating out less.

You can also focus on getting more value for your day-to-day purchases. Superstores, for example, offer discounts to members who buy in bulk.

Generally, try calculating your net worth once a year. You may want
to do it more or less frequently, depending on how often your financial situation and goals change. The accompanying worksheet can get you started.