Savings Fitness: Beginning Your Savings Fitness Plan
Let's look at your current financial resources. This is important because your financial resources affect not only your ability to reach your goals, but also your ability to protect those goals from potential financial crises. These are also the resources you will draw on to meet various life events.
- Calculate your net worth. This isn't
as difficult as it might sound. Your net worth is simply the total
value of what you own (assets) minus what you owe (liabilities).
It's a snapshot of your financial health.
First, add up the approximate value of all your assets. This includes personal possessions, vehicles, home, checking and savings accounts, and the cash value (not the death benefits) of any life insurance policies you may have. Include the current value of investments, such as stocks, real estate, certificates of deposit, retirement accounts, IRAs, and the current value of any pensions you have.
Now add up your liabilities: the remaining mortgage on your home, credit card debt, auto loans, student loans, income taxes due, taxes due on the profits of your investments, if you cashed them in, and any other outstanding bills.
Subtract your liabilities from your assets. Do you have more assets than liabilities? Or the other way around?
Your aim is to create a positive net worth, and you want it to grow each year. Your net worth is part of what you will draw on to pay for financial goals and your retirement. A strong net worth also will help you through financial crises.
- Review your net worth annually.
Recalculate your net worth once a year. It's a way to monitor your
financial health.
- Identify other financial resources. You may have other financial resources that aren't included in your net worth but that can help you through tough times. These include the death benefits of your life insurance policies, Social Security survivors benefits, health care coverage, disability insurance, liability insurance, and auto and home insurance. Although you may have to pay for some of these resources, they offer financial protection in case of illness, accidents, or other catastrophe.
Source: U.S. Department of Labor, 2006.
This publication is for general informational purposes only and it is not intended to provide any reader with specific authority, advice or recommendations. Where you deem necessary, we suggest that you seek advice regarding your particular situation from the appropriate professional.
U.S. Department of Labor.
