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Most of us would like to retire some day; some sooner rather than later. Some will actually be able to retire sooner due to the astuteness of their retirement planning and their skill in implementing said plan. One of the things that many retirement planners look closely at is an individual’s net worth. It’s imperative you know where you’re jumping off from when you begin planning for retirement. You need to know your financial position in relation to your goals; otherwise you’ll have little idea how to allocate your resources. 

Net worth, as many of you probably know, is the difference between your debts and your assets. As you can see there are two ways to grow your net worth. You can reduce your debt, or increase your assets. You can also do both to increase your net worth even faster. Keeping track of your net worth on a regular basis will give you an excellent picture of your financial health in that one moment. You should track your net worth on an annual basis. You can even calculate it every 6 months for a more complete picture of where you are financially. You should definitely do this so you can keep your net worth going up and make any adjustments necessary to ensure it continues to do so.

How can you calculate your net worth? It’s fairly simple, actually. You must first total the value of all your assets. Don’t worry about any debt connected with them; you’ll get to that in a minute. Make sure you include real estate, bank accounts, investments, and material possessions such as vehicles, furniture, and jewelry. Don’t forget 401K or other retirement vehicles, such as pension plans (if anyone still has one of those). Next you’ll want to (well you may not want to, but you must for the purposes of this calculation) add up all your debts. Include everything; mortgages, credit cards, car loans, store accounts, business debts (if you’re a sole proprietor), etc.

It’s nice to use a spreadsheet to do this. That way you can save it as a template and just add any new entries, and change the numbers for your next net worth calculation.  Personal finance software such as Quicken can make this process much easier. (Debt Free readers - You Save up to 36% off Quicken here) If you use the software consistently, you’ll already have all the information to make the calculation without all the troublesome math and stuff.

Once you’ve calculated your net worth, or lack thereof, you’ll know how far you must travel to meet your retirement goals. As you get closer to achieving your retirement goal, you’ll notice a feeling of warmth and jubilation wash over you like a warm bath. You’ll no doubt get giddy with anticipation. The truth is you can always keep working if you love your work, but it’s always nice to know you’ll never have to again.