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Know Your Net Worth

Practice sound personal financial management to make your net worth grow steadily over time. ©iStockphoto.com/Darren_Utt_Photography

An important first step in controlling your financial future is calculating your net worth. It's not hard: add up what you own and subtract what you owe. Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals.

To figure out your net worth, follow these simple steps:

1. Add up your assets. Assets are your possessions that have value—for example, money in bank accounts, stocks and bonds, personal property and equity in a home.

2. Tally your liabilities. Liabilities are financial obligations, or debts. Examples include credit card balances, unpaid bills (more than 30 days overdue), loans (including vehicle, student or other personal loans), and mortgages.

3. Do the math to figure out your net worth. Subtract the total amount of liabilities from the total amount of assets. What you're left with is your net worth.

The goal, of course, is to have more assets than liabilities, in which case you have a "positive" net worth. If you do, you're on the right track and probably ready to start an investment plan.

If your liabilities are greater than your assets, you have a "negative" net worth. That means you have some work to do, probably on both fronts. To reduce liabilities, you might find it necessary to put yourself on a monthly plan to pay down your credit cards and use them less frequently. To increase assets, save smart. For instance, if you have an employee-sponsored retirement plan that offers a match, contribute enough to maximize the match. Setting savings and debt-reduction targets, and automating pre-determined amounts each month or pay period, help keep your net worth in positive territory.

Use FINRA's Net Worth Worksheet to calculate your net worth.

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