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Net Worth: Your Financial Compass

With the holidays behind us and a fresh New Year ahead, it’s time to zoom-out, look at the big picture of your financial life, and turn some of those abstract resolutions into a more concrete plan.

 

Whether you’re regularly updating your net worth, or have never done it, the following 3 Step approach might prove a useful guide.



But first, a quick note on WHY it’s important to know your net worth to begin with.


Why look at personal net worth?

 

Net worth is one of the most important indicators of your overall financial health, objectively measuring three things:

 

  1. How much of your income (money flowing in), actually stays with you (is accumulating wealth),

  2. Your progress beyond a salary, showing the state of your financial independence, and

  3. Whether you can afford a major money decisions such as a new home, leaving your corporate job to pursue full-time your side hustle, or investing in a rental property

 

Knowing your net worth is the fundamental starting point for any financial plan you make, replacing emotional guesswork with a data-driven strategy.

 

Now that we know WHY we need it, let’s look at HOW we calculate it, interpret it, and use it to make a conscious financial plan.



Step 1: Calculating your net worth

 

The mathematical formula is simply “Assets – Liabilities”.

 

In other words, everything you OWN minus everything you OWE.

 

Most common assets include: real estate (e.g. any property you own, a piece of land), cash savings, investments, vehicles, precious metals (e.g. gold jewelry) and art or other collectibles.

 

Most common liabilities are: mortgages, student loans, car lease debt, credit card debt.

 

Feel free to use this Net Worth template I apply with clients during coaching.

 


Step 2: Interpreting your net worth

 

Now that you arrived at a number for your net worth, what do you think? Is it too low, good enough, or better than expected?

 

And how do you feel about it? Sad and disappointed? Happy and hopeful?

 

When I help my clients calculate their net worth, I usually get one of these three most popular reactions:

  • I should have had more than this by now

  • I don’t know what I should think about it

  • I don’t feel like this is real money

     

If that’s what’s also going through your mind, it makes sense you’d react this way. Interpreting your net worth, especially for the first time, can seem too abstract.

 

Worse still, there’s some of us who see net worth equal to our self-worth!

 

I myself have struggled with giving proper meaning to my net worth for several years until this finally clicked for me: net worth is a snapshot in time that shows where all my financial decisions on earning, spending, saving and investing, have gotten me so far.

 

Interpreting net worth in this way helped me see it as a ‘financial compass’, showing me where I’m going directionally. Plus, I get comfort knowing it’s dynamic (it CAN and WILL change), and that it’s ME who changes it, not faith or chance.

 

I also like how Carlos explains the concept of net worth, equating it to a company’s balance sheet: just like a company, we make money, spend some of it on ‘operations’, invest some of it back into ourselves to grow, and take on debt to achieve certain life projects. Our net worth is then showing us the 'bottom line' of our personal enterprise: it reveals how efficiently we are turning our hard work into lasting stability.

 


Step 3: Using your net worth to make a plan

 

Now here’s the juicy part: regardless of whether you calculated your personal net worth for the first time, or you’ve been doing it for years now, the question is the same: where will you take it next?

 

And I don’t just mean slapping a target and a deadline, like “1 million by December 31st”, although feel free to do that if it’s what speaks to you most.

 

What I mean is critically looking at your biggest financial moves over the next 12 months and assessing their impact on your net worth, both in the short-term and longer-term.

 

Some financial moves will have a more straightforward impact. For example, building an emergency fund or investing for financial independence will mostly add to the assets part of your net worth.

 

Others will need more careful consideration.

 

For example, say you’d like to buy a rental property in 2026. Achieving this goal could impact your net worth in 4 ways:

 

  1. Adding to your assets in the form of the value of the new property

  2. Adding to your assets in the form of cash savings and/or investments from the rental income you’d generate

  3. Subtracting from your assets whatever cash downpayment you’d like to make and/or paying for renovations

  4. Adding to your liabilities (assuming you’d take out a mortgage for it)

 

Would your net worth grow or decrease within a year? What about within 3 years?

 

And let’s not forget about opportunity cost: what else could you do with the cash you’d put into this rental property, that could increase your net worth more?



Should I always be growing my net worth?

 

In my personal opinion: yes, you should aim to increase your net worth consistently, especially during your best income-producing years.

 

Why? Because it’s what sets you up for sustainable, long-term financial freedom.

 

However, obsessing over growing your net worth is also not the intention. It can take the fun out of money 😊

 

Use net worth as a ‘financial compass’: are you going in the direction you want to? Or are you just ‘winging it’?

 
 
 

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