Planning your financial life without knowing your net worth is like trying to navigate a remote, unknown territory with a map but no idea of where you are on the map. You might take purposeful steps in one direction, but if you don't know where you are, you won't end up where you want to be.

Calculating your net worth shows you exactly where you stand financially. Your net worth is the total value of your liquid assets minus your debts. Assets include cash, stock, bonds; the equity in your home; and any personal property you could sell relatively fast, like extra cars or jewelry. Debts include car loans, mortgages, home equity loans, furniture loans, student loans, and credit card debt.

You might automatically put your car down as a valuable asset, but unless you're in the process of selling the car and won't buy a replacement, you'll never see that value as cash. A car is a depreciating asset. The same can be said for jewelry and other personal property that you aren't in the process of selling. Even if you could part with valuable jewelry, you would probably only achieve 50 to 80 percent of its retail value.

Some financial advisors include the cash value of life insurance policies in the assets column, but unless you are in the process of redeeming them for cash, they may skew your net worth calculation.

Once you have a clear picture of what you really have and what you really owe, you will see where improvements need to happen. If one of your long-term goals is to buy a home, you'll need to accumulate a down payment. If you want to travel, you're going to need a couple thousand dollars to see Europe.

The point is that many of your goals require cold, hard cash that will be paid out of your net worth, so to reach your goals, you'll want to increase your assets and diminish your liabilities. By knowing your net worth at the outset and staying on top of it, you'll be able to track your progress.