Financial Checkup: Calculate your Net Worth and Cash Flow
Have you ever done your own financial checkup? Do you regularly calculate your net worth and cash flow? It’s a fairly simple exercise, but not something many people–especially Filipinos do.
As people, it’s fairly easy to associate someone’s monetary standing via the material things they own. However, just because they have a lot of material possessions and fancy stuff doesn’t mean they are rich. They could just be rich in debt.
Your net worth is not your annual income. The more one’s paycheck grows and the higher promotions you achieve, the more people become flippant with spending money they haven’t earned yet.
One of the most important steps in financial planning is knowing your own net worth and cash flow. The goal is to slowly work towards a positive net worth and cash flow: by paying off all debts and then acquiring more income-generating assets.
We must make sure we have more assets than liabilities, to have a positive net worth. If your liabilities overwhelm assets, then your net worth is negative.
If you’re nervous about knowing your real net worth and cash flow, then it’s all the more important to calculate it the soonest.
What’s your Net Worth?
Your net worth is a snapshot of your overall financial health at a fixed point of time. It’s a picture of where you stand financially.
You can calculate your net worth with a simple pen and paper. To calculate your net worth, use the fairly simple formula:
Total Assets – Total Liabilities = Total Net Worth
Your net worth is a measure of the things you own (assets) less the things you owe (liabilities).
– Savings Accounts
– Checking Accounts
– Patents, Trademarks
– Mutual Funds and Investment Funds
– Household items, jewelry, art (anything of market value)
– Properties (condos, home, property)
– Vehicles (depreciating value)
– Student loans
– Personal loans
– Credit card debt
– Other debt
Once you determine your net worth, you can clearly see your weaknesses, which items are holding you back and which areas you should prioritize.
Net worth is not a static number, so it’s best to assess your net worth on a regular basis: maybe every month, or every quarter. As you track your net worth over time, you can see your progress you’re making toward getting out of debt and saving money.
Net worth provides a clear insight of how financially healthy you are, but it does not offer any information about your monthly income and expenditures. You will need to calculate your cash flow for that.
What’s your Cash Flow?
A cash flow statement is a summary of your income and expenses. A cash flow statement will give you a better understanding on the minimum amount of money you need to maintain a standard of living you’re comfortable with.
|– Main job|
– Part-time job
– Freelance income
– Business revenues
– Rental income
– Dividends / Interest
– Tax refund
– Cash gifts
|– Mortgage or rent payments|
– Loan payments
– Auto payment
– Transportation (gasoline / commute)
– Utility bills
(electricity, internet, water, phone bill TV, Netflix)
– Entertainment / leisure (dining out, gym)
Cash flow determines your movement of money. Cash flow statements should be calculated every month.
Why do you need to do a Financial Checkup?
Simple reason: what is not measured is not managed. A lot will be revealed when you do this exercise. If you have more assets than liabilities, you are in a better position. However, if you owe more than you own, you will first need to focus on paying off debts and improving your financial health.
What if I’m Negative?
Don’t fret, it’s more common than you think. Many people have a negative net worth, mostly due to car, home mortgage, or student loans. I built this blog myself to change my life, challenge myself as I acquire more research and accountability in being serious about being more financially independent.
Prioritize in slowly work towards paying off debt by living within your means (Read Tips on How to Live Frugally)
You can slowly pay off your loans
Are You Financially Healthy?
While Net worth and Cash flow is a very nifty tool for evaluating your finances, please take note that it is not indicative of a person’s worth. You could have a multi-million net worth but still feel worthless, empty, and miserable. When going through this financial journey, look into your WHY first. When you align money with purpose, you will lead a meaningful life.
The primary goal to doing a DIY financial checkup is so you can understand your current status. The next step is to make your financial goals (SMART Goal Setting)
Doing a financial checkup does not guarantee wealth. It is good to know where you stand, and then you need to put in the work to making your dreams come true.
Feel free to browse through the resources for Step 1 of your Financial Guide. You can also look at our Foolproof 5-Step Financial Guide to help you from start to success.
More Posts on Personal Finance
- Investing in my Bedroom – with Ready2Adult PHCharm de Leon, fellow Cebuano founder of Youtube Channel and FB Group Ready2Adult PH, talks about personal finance, investing and adulting.
- CEO Reading List: 20 Books on Business and LifeDo you know that a CEO reads on average 60 books per year? If you want to have the reading habits of a CEO, start with these 20 books.
- Before finding my WHY, I was a hot messI was like any other twenty-something year old: I felt like I could do anything. I wanted to move to different cities. I wanted to see the world.
- Financial Checkup: Calculate Net Worth and Cash FlowHow much do you have? What’s your net worth and cash flow? Doing your financial checkup is the starting point in financial planning.
- Find your WHY: The Quest to Finding your PurposeFinding your WHY is the key to unlocking your purpose in life.
- Setting SMART Professional GoalsSMART Goal Framework. Taking control of your life requires planning, and this starts with defining SMART professional goals.
- What does wealth look like to you?What does wealth look like? The definition of wealth is subjective, but financial success should have the following components.
Latest Blog Posts
- The King of Pop and I by Aileen Medalla, the Filipino Homeschool Teacher of Michael Jacksons KidsThe King of Pop and I by Aileen Medalla, the Filipino homeschool teacher of Prince, Paris, Blanket and her travels with the Jacksons
- 6 Ways to Sustain Your Business in the Middle of a PandemicAlthough COVID-19 is a health issue, it has affected the world’s economy. Here’s some ways to sustain your business in the midst of a pandemic.
- Gift Ideas With Little To No CostBefore you go shopping, consider these ideas to gift this pragmatic Christmas season – Guest Blog Post by Bill Asignar
- Tips on How to Host a Successful Virtual PartySmart tips on how to successfully organize and host a virtual party!
- Globe Media Excellence Awards GMEA 2020 NomineesGlobe Media Excellence Awards 2020 has just announced its list of GME 2020 nominees out of 400 entries from Vis-Min
- Eat to Live for a Fuller Life with Lalie Favia“My life revolved around food.” Mrs. Lalie Favia, coming from a family of chefs, shared.
- How to Live with Diabetes and Take ControlSad truth is, thousands are dying on what could’ve been a preventable and manageable disease.
- Cashless Negosyo Webinars for MSMEsCashless Negosyo Webinar – MSMEs are encouraged to implement cashless payments for safer, convenient, and contactless transactions.
- BPI Lifestyle – Special Promos on Nov 20 and 21On November 20 and 21, a virtual event called BPI Lifestyle: A Virtual Experience, featuring products with special offers and discounts
- How to Avoid Paying Gcash-to-Bank Convenience FeesSavvy tips on How to Avoid Paying Gcash-to-Bank Convenience Fees. Here are some hacks you can do to bypass or circumvent these fees.