Starting late to FI? Start with your net worth

Photo by Melissa Walker Horn on Unsplash

Are you a late starter too? Are you starting on your journey to FIRE (Financial Independence Retire Early) in your forties and beyond?

I know what it feels like. The paralysis by analysis. The regrets and should’s. That urgency to start investing right now. So behind in the compound interest game.

The big question is always “where do I start?”

Take a deep breath. It’s ok.

It is never too late to start so start, we shall.

At the beginning. With our net worth. 

I mean, we need to find out what our personal net worth is.

What is my net worth?

Very simply, my net worth equals my assets minus my liabilities.

In other words, my net worth is what I own minus what I owe to others.

I have a positive net worth if my assets are more than my liabilities.

And conversely, I have a negative net worth if what I owe to others is more than what I own. 

Why is net worth important?

My net worth describes my financial position or situation. At a glance.

How strong is my financial situation? What am I worth in financial terms?

I always want to have a positive net worth ie I want to have more assets than liabilities. I always want to own more than what I owe to others.

A positive net worth tells me that in the absolute worse case scenario, I can sell everything I own (or wait until I retire, if I have a lot of money tied up in retirement accounts) and pay my debts off completely.

A negative net worth, on the other hand, tells me I am in dangerous territory – that I don’t have enough assets to cover my liabilities.

But I must stress, it is NOT the end of the world. There are many ways we can get to positive net worth. 

At this stage, we just need to find out where we stand – do we have enough assets to cover our liabilities? What does our financial picture look like right now?

There are many on line net worth calculators such as this one. But just use pen and paper or a spreadsheet to begin.

Start with what you own

Assets are what you own.

As a starting point, list everything you own of value eg your house, car, boat, expensive artwork. Estimate how much they are worth today if you were to put them on the market. Do not use the original purchase price unless you bought them yesterday. Be realistic on the estimates – err on the side of conservative. There are a myriad of online tools. For example, to estimate the value of your house, try this one if you live in Australia.

Next, look at your bank accounts. List every single one and note the balance.

Do you have superannuation or retirement accounts? You may have more than one, if you have changed jobs or employers. If you have lost track of your super (which is easy to do if you have changed your name or address, for example), check out the ATO website. You may have ‘lost’ super somewhere. How exciting! List every account and its balance.

Do you own any shares? Many people bought shares in the 90s as IPO (Initial Public Offering) – remember when Commonwealth Bank, Telstra, Qantas floated on the ASX? I bought them in my early twenties because my Dad told me it was a good idea. What is your share portfolio worth today?

Any other investments? List everything and it’s balance.


How much do you owe?

In other words, what are your debts?

Who do you owe money to?

Do you own your house, car, boat, shares outright? If not, list all your mortgage balance, car loan balance etc.

Do you have credit cards? What are their balances? Afterpay or other buy now, pay later schemes? How much do you owe on those purchases?

Do you have a personal loan? Do you owe your best friend money? Your mother? List everyone you owe money to and the balances.

Do you have HECs or HELP debt? Student loan debt?

Be honest – we want to know the full picture.

And the result is ...

Reminder: Net worth = assets (what you own) – liabilities (what you owe)

How did you go? Are you ok?

If your net worth is positive, woohoo! Great start – now, you can work to improve it.

And if it is negative – now you know where you stand financially, you can work to improve it. 

How do I improve my net worth?

Let’s look again at the net worth equation.

Net worth = assets – liabilities

Therefore net worth will increase if you increase your assets and/or decrease your debts.

The next step is to explore how you can do this.

For me, I am working on increasing my savings and investing that savings in my superannuation and shares portfolio. I want to own more assets that appreciate in value, rather than those that depreciate in value. 

Real estate is very expensive in Australia and the ‘buy 10 houses in 10 years’ strategy has sailed right past me. But it may be different for you. 

Consider what you can do to pay off your debts faster, within your abilities. Can you increase your income? What expenses can you eliminate or decrease while you focus on reducing your debt? Start tracking your expenses.


Tracking your net worth

From now on, you can track your net worth to assess your financial health. I choose to track monthly but it is up to you. Some people track it annually, for example at the beginning of the year. 

It may be a bit discouraging initially when we cannot see much improvement. But it will improve over time, as you work on that equation – to increase assets and decrease liabilities. 

There is some disagreement among the personal finance community as to what asset to include. For example, some don’t include their paid up house as they are not selling the house in a hurry. Some don’t include assets that depreciate eg cars. Some include their cars but look up their value once a year to account for depreciation. Others don’t include their cars because they are not worth a lot of money.

It is up to you. Just be consistent. So that you can glance at your figure and know if you are making progress and how healthy your financial position is.

In my case, I do include my paid up house as that gives me a total picture of my net worth. But I only estimate the value of my house once a year and use that number throughout the year. I am not selling anytime soon. It just gives me an idea of what my house is worth.

I do not have any cars, boats or expensive artwork. So no arguments here.

Tracking my net worth shows me that the majority of my assets are tied up as fixed assets – assets that I cannot convert to cash readily, namely my house and superannuation. 

So it is important to me, moving forward that I build up my ‘liquid’ assets, assets that I can convert to cash quickly. For me, this is cash (mainly my emergency fund) and a share portfolio. If I want to retire before turning 60, I need to live on funds outside of superannuation.  

Tracking my net worth over time gives me hope. Watching the ever small increments may be tortuous but I know I will get there eventually. 


Final thoughts

Everyone says ‘just start’ when we begin our journey to FI (with or without RE). But how and where? 

Starting with knowing our net worth gives us a good picture of where we stand financially. We can then work on increasing our assets and decreasing our liabilities to get ahead.

How often do you track your net worth? Do you include your house, car, boat?

10 Replies to “Starting late to FI? Start with your net worth”

  1. Good read! It’s important to know what your starting point is to figure out an action plan. Like you, I include my paid off house just to see the whole picture. I’m not selling it but it’s important to know what my money is tied up in and the market value. Thanks for sharing.

  2. Great post, well timed! I just started my FIRE journey and first thing I said was “just start” and the second thing I’ve done it my October (and start line) net-worth report! It actually gave me a confidence boost as it’s not the best but it’s helped me not beat myself up about all the mistakes I’ve make and things I’ve “should of done” in the past!
    Cheers 🙂

    1. Hi Lauren, I should have written that the first step is not to beat ourselves up for past mistakes 🙂 Good on you for getting started! One step at a time will get us there in the end.

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