Do you know your net worth? Does it even matter?
There are a few numbers in your finances that you need to be tracking to improve your financial health. And your net-worth is pretty high up there on the list.
It’s the sum total of your complete financial life, distilled into one number. It takes your cash, investments, real estate, automobile Kelly Blue Book (Market) value, and any other assets that can be liquidated for cash minus your liabilities – credit card debts, personal loans, mortgages, auto loans,
Now your net-worth isn’t a one time figure. It moves over time as you increase your investments, acquire more assets, and accumulate more debt. So it can be a drag trying to manually keep track of thee figures every month.
But luckily you don’t have to do it by hand. My favorite tool for giving me the
I can link all my accounts – credit cards, bank accounts, retirement accounts, 529s,
But why does your net worth mater anyway? What’s so great about tracking your
Good Indication of Your Overall Financial Health
It can be incredibly overwhelming if you are only focusing on your debts but putting it into perspective with your assets, you might realize that things aren’t really as bad as you think.
Better Measurement Than Income
You’ve probably heard the saying ‘it’s not what you make, it’s how much you get to keep’. And it’s absolutely true. Your income measures the funds that are coming in, but alone that doesn’t tell you much. You could double your income every and still be unable to live you want.
That’s because your income only tells you one piece of the story. It tells you nothing about what’s coming out. And that is just as important. If you are spending more than you earn each month then tracking your income won’t show it.
Tracking your net-worth, on the other hand, would show you rather quickly with a lowered net-worth If you were overspending into the negative each month, and an increase in net worth if you were under budget.
Your net-worth measures your day to day, month over month accumulation over time and a true measure of wealth.
Details Are in the Data
You can’t really know what’s happening with your finances without looking at the details. Because it’s in the details that you find all the juicy information that can help you improve your finances.
For example: if you aren’t seeing any increase in your networth over the course of a few months, then it is worth your time to investigate. What returns are you getting on your investments? Are you not saving enough? Do you have too much in savings and not enough invested? Are you actively paying down debt and that explains the stagnant growth?
All are details that could only be discovered by looking at the data.
Great Motivator To Save
If your net worth is showing that you are on track to reach your financial goals, then it can be an encouragement to keep at it and bump up your savings.
Adversely, if your net worth is below expected or showing a negative number, then it can be used as the fire you need to step it up and get serious about saving.
I use Personal Capital to test different saving scenarios – what if I saved an extra $3000 towards retirement how would that impact my retirement income. Or what if I decreased my kids 529 contributions.
It’s great to see how my actions can impact my long term savings. It helps motivate me to do something smart, or avoid doing something stupid.
Great Motivator to Pay Off Debt
If you’re struggling to pay off debt, then checking in on your net worth is a great way to stay motivated. I’m currently in a debt payoff focus and check my Personal Capital account every day (maybe even several times a day) to see the downward slope of my debt graph to remind me to stay on track.
Because I link all my credit cards in the app, I can see very quickly if any purchases were charged on my card – like some randomly forgotten subscription for example.
Bottom line: tracking your net-worth is one of the easiest and arguably, the most important step needed to improve your finances, and Personal Capital is my favorite tool to make things even easier.
But I’d love to hear from you.
Are you tracking your net worth? And if you are, how has it changed how you view your finances? Let us know in the comments.