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What is your net worth?

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Your net worth is the difference between the value of what you own and the total amount that you owe. It's the amount of cash you'd have in your back pocket if you sold everything and paid off all your debts today

It's another way of saying how wealthy you are.

Knowing your net worth is important as a first step in setting your financial goals, and building your financial plan.

Overall, your financial goal should be to increase your net worth over time.

Calculate your net worth every year

Calculate your net worth now - write down the value of what you own and subtract the amount you owe. The difference is your net worth. Write down the goal for your net worth in 12 months time. Think about where the growth is likely to come from (for example, $3,000 from savings from your pay, $400 from growth in investments, $2,000 from an expected tax refund). Over a few years you could graph the changes to your net worth.

Net worth is really important when you're thinking about retirement. In retirement, most people want to be debt free, have a house, and have some money to live on.

The composition of your net worth (that is, how it's made up) is important too - it's the balance between your assets that provide a cash income such as an investment fund, and your non-cash producing assets such as your house.

Calculate your current net worth. It'll help you set your goals. And review your position, say, once every year. You'll need to ask yourself two things:

Is my net worth increasing overall?

Is the composition of my net worth (This is the balance between your cash producing and non-cash producing assets) about right? (That is, do you have the right balance of cash and non-cash assets?)

For more information, visit www.sorted.org.nz