I've added a new Page to the Blog and it's under the heading 'Freedom Fund / Net Worth'.
I've been spending more time reading other Blogs whilst I've been recovering from my operation and I've come across Net Worth quite a lot. I've been meaning to work out what my Net Worth is for a while now and I thought it was about time to find out.
Before working out my Net Worth one evening, a weird 'Truman Show' style coincidence occurred. I was sat at my computer for the evening and before calculating my Net Worth I decided to check out Bloglovin to see what posts had been published. I came across one from Joe @ Budget Breakaway, the title was - How To Calculate Your Net Worth. Freaky!
If you haven't calculated your Net Worth before, I would recommend checking it out. Joe discusses what you need to know about Net Worth, How to calculate it, a free Net Worth calculator, and some other great resources to working it out. Thanks for the help Joe!
Calculating my Net Worth
The first part to calculating your Net Worth is finding out how much money you have in assets. These include your house, car, possessions, pensions, savings, investments etc. Thankfully I've been tracking most of these assets already so it was a case of adding them together.
The one asset I hadn't been tracking was my home equity. I contacted the mortgage company and got an 'estimate' to how much of our mortgage we had left. I then searched Rightmove to see how much houses were in our area that were equal to ours in size and quality. Once you subtract the mortgage from the house value - you have your home equity. I took the final step of calculating my share of the home equity and added it to the rest of the assets.
The next stage was calculating my liabilities. I had already accounted for our mortgage in the home equity section in assets. I don't have any other debts apart from my student loan. This was another account that I hadn't been keeping track of on a monthly basis. My method up until now was to receive the annual statement in the post, and file it away with the previous years. During this 2 minute process, I'd look back at how it was coming down year after year, and then I'd put the file away again. 2015 is going to be different!
I decided to calculate a monthly average of my payments and the interest from the Student Loan Company. I'm now going to be using that calculation on a monthly basis, until I get my annual statement where I can then update to the exact amount. I estimate that the loan will be paid off in full when I'm 39. I'm hoping it will be even earlier than this as I'm likely to earn more money and pay more off each month as I work through my 30's.
If you have any other forms of debt - Credit cards, Loans, Car finance, or informal debt to friends that have lent you money etc. You add these together and subtract the figure from your assets to get your Net Worth.
Was it worth it?
The exercise of working out my Net Worth has helped me gain some visibility on my home equity and student loan. For that reason alone I'm glad I spent the time working it out. It didn't take very long either.
This figure isn't going to be my priority, but I plan on tracking it every month and setting myself an annual goal to shoot for. For 2015 I plan on increasing my Net worth to £80,000.
The process of working out this number also brought me to adding up the accounts that really matter to me - My investments! When I add these together they form a powerful bond that creates the Freedom Fund. Not too dissimilar to when the Power Rangers morph together to create the mighty Zords!
My freedom fund consists of my NISA investment account where I do DGI. This account can be seen in my 'Current Portfolio' page. I have a separate taxable share account which I decided to fund with money I had sat in a cash ISA. I will continue to fund this account once I've passed my £15,000 annual allocation for the NISA. The final account is the smallest, but biggest yielding, Peer to Peer Lending. I funded this account a couple of years ago, and I've used the income from it to fund the NISA investment account.
These three accounts will be responsible for creating the income that allows me to become FI. This is my priority.
I will track this figure every month with my Net Worth and I've set an annual target for it too. For 2015 I plan on increasing my Freedom Fund to £50,000. This will be 20% of the £250,000 Ultimate Goal I have for FI.
Both my Net worth and Freedom Fund Goals have been set high. I currently don't earn enough money, or save enough to invest with that will get me to these totals. I will need to figure how how I can increase my income and reduce my expenses to have a chance of achieving them.
Thank you all for your kind words of support. Wish me luck!
Do you track your Net Worth? Have you found it useful? What do you think of the Goals I've set for 2015? Have you started with your 2015 Goals yet?
Labels: Freedom Fund / Net Worth