The first step in developing a budget is determining your net worth - that is, your total value/worth at any given moment. There are three criteria for determining your net worth: (1) all of the items of value (and their values) that you own; (2) your debt, or loans, that you owe to others; and (3) the total amount after you subtract your liabilities/debts from your assets (your valued items, etc).

The equation for determining your net worth is simply:
ITEMS OF VALUE - AMOUNTS OWED = NET WORTH

Assets are arranged by their influence of liquidity, or how probable it is to convert them into cash without losing much in the process. The most liquid assets are cash, checking/savings accounts, and stocks/investments in money markets. Your house will likely be your most valuable asset, while smaller assets should also be accounted for, such as vehicles, clothes, personal items, furniture, etc. These items are generally not sold for the worth you would like or that they may even be worth, but they still may acquire some additional money if you do so choose to sell. Add all of these assets, and you will have an approximate of your asset values/total.

Liabilities are the less enjoyed subject of this discussion. Debt and loans always suggest that you are losing money, not earning money. Always assess your liabilities by listing your most current debts first. Include all bills you owe, such as telephone, cable, utilities, car insurance, etc. Then assess your debts to credit cards and loans after. Home mortgages are generally the largest debts for people. And always include outstanding balances when accounting liabilities, not just the initial costs.

It is important to determine your net worth in order to best determine your overall financial standing and to monitor it over a long period of time. Ideally, you should shoot for a growing net worth, of positive value, versus a decreasing net worth over time, or any negative net worth. Net worths do change on a daily basis, so it is important to look at them as a guidance for longer periods of time, and not to account for their daily values. For example, it may be a good idea to determine your net worth on an annual basis for best comparisons over each year.