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When was the last time you calculated your net worth? Last month… Perhaps last year? Or never?

Now there’s no need to panic if the answer is never. You also don’t need to panic if you know nothing about net worth because I’m about to tell you what you need to know… right now. 

In this article, I’ll provide a brief overview of why net worth is important, how it can support your FIRE goals, how to calculate it, and how understanding your net worth can support your financial situation, regardless of your goals. When you’re done reading you’ll know to calculate your net worth to support your FIRE dreams.

An overview of net worth as it relates to FIRE

If you’re new to Financial Independence Retire Early (FIRE), then no worries! I had NO idea what FIRE meant as a young adult (though I do recommend reading the About Page to get a more detailed overview).

To put it simply, FIRE is a popular financial goal that involves retiring early by living a frugal lifestyle and saving a large percentage of your income. To achieve FIRE, you’ll need to have a high net worth, which is the total value of your assets minus the total value of your liabilities.

Whew, I know that was a lot, so take your time and digest as much as you need to.

What is net worth?

Net worth is the total value of your assets minus the total value of your liabilities. 

Assets are things you own that have value, such as cash, investments, real estate, and personal belongings. 

Liabilities are debts you owe, such as student loans, credit card debt, and mortgage debt.

Why is net worth important for FIRE?

Your net worth is a good indicator of your financial health, and your ability to reach financial independence and retire early. The higher your net worth, the more money you have available to cover your expenses in retirement.

Calculating your net worth is an important step in preparing for FIRE because it gives you a clear picture of your financial situation. Knowing your net worth can help you set realistic goals for saving and investing, and it can also help you identify areas where you can cut back on spending.

Once you know your net worth, you can start to track your progress toward FIRE. There are a number of FIRE calculators available online that can help you estimate how long it will take you to reach your goal.

How to calculate your net worth

To calculate your net worth, simply add up the value of all your assets and subtract the value of all your liabilities. 

For example, if you have $100,000 in cash, $200,000 in investments, and a $150,000 mortgage, your net worth would be $150,000 because $100,000 + $200,000 – $150,000 = $150,000.

Psst… Want a really easy way to calculate your net worth? You can access my Net Worth Calculator Spreadsheet Template here. Just note, that you’ll need to go to File -> Make a copy to create a copy to your Google Drive before you can make changes.

Some tips for calculating your net worth and preparing for FIRE

Be honest with yourself about your assets and liabilities.

If you’re just starting out, then you’re probably not where you want to be in order to achieve your goals, and that’s ok! This is why you’re taking this step – there’s NO need to feel any shame about your current situation. 

In fact, feeling bad about yourself can actually be a hindrance at this point in your journey.

What is important is that you’re truthful and accurate so that you know the reality of your current situation.

On another note, if you’re not sure what you should consider an asset or a liability, you can check out this list. 

Track your net worth regularly.

It’s a good idea to track your net worth at least once a year. This will help you see how your finances are changing over time and make sure you’re on track to reach your FIRE goals.

Psst… if you need help keeping track of your progress toward your goals, I recommend using ClickUp.

Make adjustments to your spending and saving habits as needed.

If you’re not on track to reach your FIRE goals, you may need to make some adjustments to your spending and saving habits. This could mean cutting back on expenses, increasing your income, or both.

Don’t give up.

Reaching FIRE takes time and effort. It’s not easy, but it’s definitely possible. Just keep track of your progress, make adjustments as needed, and don’t give up on your goals.

Psst… here’s a reminder that ClickUp is a handy tool to help you track your progress toward your goals.

3 steps to calculate your net worth

1. Gather your financial information to help you list your assets and liabilities.

This includes your bank statements, investment statements, mortgage statements, and any other documents that show the value of your assets and liabilities.

2. List your assets and liabilities in this spreadsheet.

Start by listing all of your assets, including cash, investments, real estate, and personal belongings. Then list all of your liabilities, including student loans, credit card debt, and mortgage debt.

3. Determine the value of each asset and liability.

For assets that are easy to value, such as cash and investments, you can simply look at the current market value. If your assets are more difficult to value, such as real estate and personal belongings, you may need to get a rough estimate.

For liabilities that have a fixed balance, such as student loans, you can simply look at your most recent statement. If you have liabilities with a variable balance, such as credit card debt, you will need to add up the current balance of all your credit cards.

If you’re using the net worth calculator spreadsheet, it will automatically calculate your net worth (in cell H1). Just note, that you’ll need to insert liabilities as a negative number to get an accurate calculation.

7 Ways Your Net Worth Can Prepare You for Early Retirement

Here are 7 ways your net worth can prepare you for early retirement:

1. It can cover your living expenses.

One of the biggest expenses in retirement is housing. If you own your home outright, your net worth will cover the cost of housing in retirement. 

If you still have a mortgage, a higher net worth will help you pay off the mortgage sooner, which will free up more money for other expenses.

2. It can provide you with a source of income.

You may have other sources of income in retirement, such as pension payments, dividends from stocks, or rental income. Your net worth can help you supplement these income sources and ensure that you have enough money to live comfortably in retirement.

3. It can give you peace of mind.

Knowing that you have a sufficient net worth to cover your expenses in retirement can give you peace of mind, and allow you to enjoy your retirement for years without worry.

4. It can allow you to retire early.

If you have a high net worth, you may be able to retire early. This means that you can slow down or stop working and spend MORE time doing the things you love.

5. It can give you more flexibility in retirement.

A high net worth (or financial freedom) can give you more flexibility in retirement. For example, you may be able to travel more, take up new hobbies, or volunteer in your community.

6. It can leave a legacy for your heirs.

Financial freedom can help you leave a legacy for your heirs. This could mean leaving them money, property, or other assets.

7. It can help you achieve your financial goals.

Financial freedom can help you achieve your financial goals, such as buying a home, saving for additional education or training, or starting your own business.

If you want to retire early, it’s important to start planning and saving now. By increasing your net worth, you can increase your chances of achieving your financial goals and retiring early.

Here are some additional tips to help you prepare for FIRE:

Be realistic about your expenses.

When evaluating whether or not your net worth will support your lifestyle, it’s important to be realistic about your expenses. Don’t forget to include things like travel, entertainment, and healthcare costs.

Start saving early.

The earlier you start saving, the more time your money has to grow. Even if you can only save a small amount each month, it will add up over time.

Invest wisely.

When you invest your money, it’s important to do your research and choose investments that are appropriate for your risk tolerance.

Psst… if you’re interested in learning some ways you can start investing in the stock market, I recommend reading The Bogleheads’ Guide to Investing.

Live below your means.

One of the best ways to achieve financial freedom is to live below your means. This means spending less money than you earn.

Get out of debt.

Debt can be a major obstacle to early retirement. If you have debt, make a plan to pay it off as quickly as possible.

Stay positive.

The journey to early retirement can be long and challenging, but it’s important to stay positive. Remember that your goals are within reach if you stay focused and disciplined.

Conclusion

Your net worth is an important factor in your ability to reach FIRE (Financial Independence and Retire Early). By calculating your net worth and taking steps to increase it, you can improve your chances of retiring early and living life on YOUR terms.

Think understanding your net worth will help you FIRE Your Career and achieve your FIRE goals? Check out the posts page for more ways you can FIRE Your Career and achieve financial freedom.

FIRE Your Career: Achieve Financial Freedom Through Your Career & Spend MORE Time Doing What You Love.

Products I recommend in this article:

The Bogleheads’ Guide to Investing (stock market investing book)

ClickUp (project management software to keep track of your progress toward your goals)

Disclaimer: I am not a financial advisor and none of the above should be construed as financial advice. For financial advice, please seek advice from an accredited financial advisor.