In the first part of Step 1, I dug through records and receipts to figure out the total amount of money I’ve ever made. In my case, I found it was almost a million dollars! Of course it’s not possible to keep it all. Which is where the next exercise comes in:
What do you have to show for it?
In this exercise, you’ll figure out your current net worth. We do this because it’s a fundamental practice for any business—and you are a business. Also, it’s good to know your net worth, since you might be closer to Financial Independence than you think!
Your net worth is all your assets (money and belongings) minus all your debts. Finding the worth of your belongings might take a while but it’s good to be thorough.
The cash component of your net worth is the value of all your bank accounts and investments, plus the cash you have on hand. If someone owes you money, you can count that here too. If you use personal finance software like Quicken or Mint, this should be quick.
The “stuff” component isn’t so easy to figure out. You’ll need to take stock of all your belongings and discover or estimate their value. You’ll begin to see the burdon of owning material possessions that don’t bring you fulfillment. On the bright side, perhaps you own an antique or other item that has a lot of value!
I went through each room of the house and added the value of every item in the room. Then I looked outside, and also factored in the value of our car and scooter.
Next is debts, to banks or people. Count your mortgage here too. Add them up, and subtract your debts from your assets. That’s your net worth.
This took me a full afternoon, but it was well worth the time. I admit I wasn’t totally thorough. For instance, I estimated the value of all the items in the kitchen together, instead of going spoon by spoon.
After I added everything up, I found it to be around $150,000. At first I was proud of the fact that I have some savings. But then I looked back to the first exercise, and realized that for every dollar I’ve ever received, I managed to keep less than 20 cents of it!
The book calls this making peace with the past, and that’s the attitude you should have while doing this and the previous exercises. You can fold up the paper you used into a paper airplane and toss it into the recycle bin, because you’re about to have a total rebirth, when it comes to how you view your personal finances.
Stay tuned for Step 2!