11 Steps To Financial Freedom – Step 2: Determine Your Net Worth

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

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.

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  1. Dr Dale Rathgeber on September 28, 2011 at 10:33 am

    Don’t neglect your RRSP.

  2. Dr Dale Rathgeber on September 28, 2011 at 11:25 am

    I think that you should top up your RRSP before making TFSA contributions, and perhaps before mortgage pay-downs.

  3. My Own Advisor on September 28, 2011 at 1:19 pm

    Good post!

    Nice to know your mortgage is high(er) like ours. What is even better, nice to know your focus is to pay off our mortgage as quickly as possible with $500 in additional payments each month. That’s awesome. We’re doing the same, although not $500 per month. At some point, once our LOC is paid off.

    Good on you guys!

  4. Mike Holman on September 28, 2011 at 3:45 pm

    Interesting process. That is quite the mortgage! I would have thought living in Lethbridge wouldn’t require borrowing that much moola.

  5. Echo on September 28, 2011 at 4:43 pm

    @My Own Advisor – Yeah, we both bought a house around the same time so it will take a while to pay down. Hopefully my roof doesn’t need repairs for a while 😉

    @Mike – It’s not as cheap as you might think…but we’ll get by 😉

  6. Eva on September 29, 2011 at 8:19 am

    Just curious…how did you calculate the value of your defined benefit pension?

    • Echo on September 29, 2011 at 8:49 am

      Hi Eva, I just added up the monthly contributions.

  7. youngandthrifty on September 29, 2011 at 11:53 pm

    @Dale- but if he has a defined pension plan, would it still make sense to put money into an RRSP? Wouldn’t he be taxed to the nines (assuming that Echo continues to work at this place until he retires?)

  8. youngandthrifty on September 29, 2011 at 11:54 pm

    PS Echo That’s great to hear you’ll be paying down your mortgage quickly.

    That’s what I wanted to do too except I’m back at school now… and we still need to rent that basement out 🙂

  9. Dr Dale Rathgeber on September 30, 2011 at 9:49 am

    @YoungandThrifty. If it is truly a gold-plated defined ben pension plan, then perhaps contributing to an RRSP is less important than mortgage pay down. It depends upon tax brackets and expected rates of return in your tax-free compounding pool. Also don’t forget about the immediate tax write-off when making an RRSP contrib. Ideally, all of us will contribute to both RRSPs and TFSAs while having a zero mortgage on our res, and several revenue properties.

    • Echo on September 30, 2011 at 11:01 am

      @Dr. Dale – After my Pension Adjustment I end up with close to $3k in RRSP contribution room each year. Ideally, yes I would like to max that out…and over the next few years I should be able to direct more savings towards both my RRSP and TFSA. I am concerned with taxes on withdrawals from both the pension and RRSP in retirement though.

      There are many competing priorities and, as a single-income household, we can only do so much each year. The DBP contributions alone make up over 10% of my salary.

      This is why I’m doing this 11-part series in order to create (or re-define) our financial plan moving forward.

  10. Dr Dale Rathgeber on September 30, 2011 at 11:33 am

    @Echo; understood; keep up the good work. I enjoy your blog.

  11. FinanceViking on September 9, 2012 at 6:04 pm

    Great summary of the net worth calculation. Do you ever get nervous about keeping such a low savings account balance?

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