January Money Diet Day 1 – Figure Your Net Worth

Vintage New Year's postcard
Happy 2014! Today marks the first day of the January Money Diet, an annual tradition for hundreds of us who take a month-long break from nonessential spending to start the new year financially strong. January 1 is a splendid day to figure out exactly where you are financially. In my humble opinion, the best and most honest way to measure this is by figuring out your net worth.

Our family’s finances didn’t really start moving in the right direction until I began doing this exercise each month. Before then, I could fool myself too easily. I could feel virtuous about putting $100 in our savings account, for instance, and conveniently overlook the fact that our credit card debt had increased by $200 that month.

Net worth, as I’m sure you know, is the difference between what we own and what we owe. On the first day of every month, I calculate ours. Now that it’s moving in the right direction, it’s an exercise I actually look forward to! My goal is to improve our net worth each and every month, even if it’s just a little bit.

If you do the same, I believe you’ll discover that your finances can improve dramatically over time. Just focus consistently on moving that bottom line up, up, up.

How To Figure Your Net Worth

Calculator image

Photo: Horia Varlan

Start by adding up your assets. If you’re a homeowner, list the current value of your home. If you’re not sure, a site like Zillow can give you a rough estimate for now. Your professional neighborhood realtor would probably be happy to give you an estimated market value, too.

Go out to your car and write down the mileage and condition, enter the info at Kelley Blue Book, and figure out the private party value. Check the current balances for your bank accounts, retirement funds, investments, etc., and add those to the list. Don’t forget things like your grandpa’s coin collection, or any valuable jewelry, antiques, artwork, etc. you own. Just be realistic about the cash that the sale of such items would generate, which is sometimes considerably less than the appraised value. Add everything up, and you’ll have a pretty good idea of your total Assets.

Next, make a list of every single one of your debts: mortgage balance, car loan, credit cards, lines of credit, student loans, etc. Add these up, and you’ll have your total debts, or Liabilities.

Now, simply subtract the Liabilities from the Assets to figure your Net Worth. You can create a simple spreadsheet with a program like Excel (Money Under 30 has one posted here) or you can simply figure it with piece of paper and a calculator.

The result will be different for each of us. If yours is a negative number, don’t despair! When I was 21, I had zero assets, $5000 in credit card debt, a new car I couldn’t afford and an upside-down car loan with a 21% interest rate! No matter what your financial situation is today, you can acknowledge that this is your starting place and resolve to get your net worth moving in a positive direction in the days ahead.

Gold vs. Butter

Gold and butter

Someone once explained this concept to me by putting spending in two categories: gold and butter. Investing money in “gold,” or assets, increases our net worth. Spending money on “butter”—more stuff—decreases our net worth. By figuring our net worth every month, I can see the effect of my financial decisions in a very real and immediate way.

If I charge a $25 sweater (“butter”) on my Visa card, our net worth goes down $25. If I instead contribute $25 to my IRA (“gold”), our net worth goes up $25. So simple!

You might also enjoy using a site like Personal Capital or Mint to automatically track your net worth.

Your Homework Assignment: Figure out your net worth, and leave a comment below when you’ve finished the task. Resolve to do this calculation monthly during 2014, and challenge yourself to increase your net worth every month. Are you already in the habit of regularly tracking your net worth? You get to coast today, or you may wish to set a Net Worth Goal for the end of 2014.

Finally, my friends, no matter what the spreadsheet says – YOU are worth more than the finest gold or silver. Here’s to a successful January Money Diet, and a financially strong 2014.

Hugs,

The signature for Eliza Cross

About Eliza Cross

Eliza Cross is a full-time writer and the author of six books about home design and food. She has been blogging about simplicity and sustainable living since 2006.

12 comments to January Money Diet Day 1 – Figure Your Net Worth

  • Stephanie

    Exercise completed. It was interesting to do as I have never done this before. Net worth comes out positive, which is good. I have made a note of the figure and will look again at the end of the year, when we have finished our house extension and had a new kitchen fitted (all accounted for in the figures).

  • I have participated in the January Money Diet last year already. When we did the net-worth back then I did it the first and second month and that was it. In August, I specifically search for the data again and created my spreadsheet. Since then on the first of the month, I sit down and put all my assets and debts in the spread sheet. I love to see my net-worth increase each month, it helps to keep unnecessary spendings at bay. One of the things I find really helpful is that I am able to keep better track of my retirement fond. I live in Germany at the moment, the fond is in the UK and the value varies each month based on some of the with-profit investments. Before I didn’t have a clue what the value was each month or how it varies but now keeping track really helps.

    Now for 2014 my goal is to have the credit card and store/credit at 0 by the end of March and then focus to reduce the car loan, at the same time I would like to increase my net-value by 350€ each month
    Anja recently posted..Happy New Year

  • I won’t be following along this year in the money diet as I rarely do any shopping to begin with and have zero credit cards or debt. Yet, I had to say I liked your gold vs butter analogy. Btw, my income has increased recently by an average of $400 per month. Rather than looking to see what I can do with this money I am simply saving it.
    Lois recently posted..Happy New Year!

    • You are in an enviable financial position, and I know for a fact it’s because of your commitment to good financial habits, discipline, perseverance and simple living. Good for you for saving that extra income, too! xo

  • Deborah G.

    Thanks for the exercise. Hope to continue to do this on a monthly basis. Car paid off and looking to pay off all credit cards by the end of the year. Happy New Year!

  • Kristy S

    Really enjoy this excercise. I tend to do this on a quarterly basis. Goals set for seeing increased net worth. Thanks for the great website. HAPPY NEW YEAR!!!

  • I’m so glad the net worth exercise is helpful, and proud of all of you who are completing this on a holiday! :-)

  • Kelly

    I’ve recently taken over our finances to relieve my husband of some stress due to our recent small business struggles. I’ve started a budget and signed up here. This is all helpful as our “big picture” situation isn’t quite as bad as I had imagined. Not sure what will happen this year, but at least I feel more in control of things. Thanks.

  • Heather

    Well… this is a first for me. It is a little depressing at first glance… (student loans are so fun!)

    The good news- I am now aware of what the picture looks like and will begin focusing my energies better. I think the spread sheet idea is fantastic and I am committed to keeping this a monthly activity. Loved the analogy of gold verses butter- thank you.

  • Natalia

    Done! I use Mint and have recently input all of my student loan debt (finally ready to actually let the number be seen on a more regular basis), however, I had not linked my new little IRA account. It was nice to have that IRA account in there, however small, just to feel like it’s not all doom and gloom. There’s hope for the future and I am investing in it. Looking forward to the next money diet prompt! :)

  • Stephanie

    Eliza – I can’t praise the Dave Ramsey Debt Snowball approach highly enough! We used it a few years ago to clear all our debts until all we had was our mortgage. It was hard at the time, but so worth it. As an adult I don’t think I had ever been debt-free before this and it feels good when you come out the other side. Afterwards, it also makes saving much easier if you re-direct the money used to make the monthly payments to your savings account.

  • CarrieP

    Hi Eliza,
    I just found your website through The Denver Post article. You are just what I’ve been looking for! Yay! I like your “butter” vs “gold” analogy. I have never heard that before. I have calculated my net worth and agree it’s a valuable exercise. I’m wondering, though, about calculating it monthly b/c of the fluctuations of the stock market. Do you include all assets in your monthly calculation? I’m thinking this might be somewhat discouraging b/c, for example, even if I’ve saved more than I’ve spent for a month, my investments may have swung many thousands of dollars from the previous month. I’d love to hear how you do this.

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