After reading an article called 11 Steps To Financial Freedom in the latest MoneySense magazine, I thought it would be interesting to go through each of these steps one-by-one and share my results on this blog. Each week I’ll go through one of the 11 steps to financial freedom, with the intention of creating a complete financial plan by the end of the series.
Last week I took the first step, Prioritize Your Goals. Today I’m going to look at the second step, determine your net worth.
Figure out where you’re at
According to the MoneySense article, before you start worrying about where you want to go, you first have to figure out where you are now. In this step you’ll create a net worth statement, which is essentially an honest measure of your current wealth.
I’ve never shared my net worth on this blog before, but I do keep track of it every few months to make sure I’m headed in the right direction.
Action Step #2 – Determine Your Net Worth
Part of this series included 10 worksheets in the Money Financial Plan Kit. For this step I used worksheet #2 – Gather Your Documents, which is basically a checklist to help you pull together everything you need before you start. Once I had all my documents in front of me, I filled out worksheet #3 – Your Net Worth Statement. Let’s take a look at the numbers:
Total Assets – $503,750
- Chequing Account – $2,000
- Savings Account – $1,250
- RRSP – $40,000
- Defined Benefit Pension – $37,000
- TFSA – $500
- RESP – $2,000
- Principal Residence – $421,000
Total Liabilities – $319,575
- Principal Residence Mortgage – $315,750
- Student Loan – $3,825
Total Net Worth – $184,175
It’s a good idea to determine your net worth at least once or twice a year in order to measure your progress. You want to keep improving your finances and building wealth over time. Remember that your net worth statement is a snapshot of your finances at a specific moment.
In our case, we just finished building a new house and had depleted the cash from our high interest savings account and sold some stocks inside our tax free savings account to come up with a 25 per cent downpayment.
Our focus now is to pay off our mortgage as quickly as possible with $500 in additional payments each month. If we keep this pace we will be mortgage free in 16 years. We’ll also start to bring our TFSA back to where it was before we cashed in our investments, and hope to have at least my account fully funded by the end of 2012.
Next week we’ll be tracking our spending with Step #3: Record Your Cash Flow.