Your net worth is a very important number that you should be tracking every month as you start to build wealth.
Your net worth is the difference between what you own and what you owe. If your liabilities (debts) are greater than your assets, you have a negative net worth.
Knowing this number gives you a great snapshot of your financial health. If your net worth is in the negative, then you know you’ll need to pay attention to it.
Here are some examples of assets and liabilities:
Assets:
- Bank accounts
- Brokerage accounts
- Retirement accounts
- Real estate
- Cars/vehicles
Liabilities:
- Student loans
- Credit card debt
- Car payments/loans
- Mortgages
Now that you know what net worth is, let’s discuss a few reasons why you should track this number on a regular basis.
More important indicator than your income
Yes, your net worth is indeed more important than your income.
Someone with a $45,000/year salary can have a higher net worth than someone who makes a $200,000/year. That doesn’t mean the $45k/year earner is more broke than the person who makes $200k/year.
For example, I personally make $48,000 a year at my job, but my net worth currently sits at around $73,000. I’m living proof that it does not matter how much you make!
Helps you track your financial progress
This is probably my favorite reason of all, as this is what got me into tracking my net worth personally.
If you have debt, you will be able to see how much debt you’ve been able to pay off. If you invest you will be able to see how much money you’ve been able to invest on a month-to-month basis.
Plus, it just feels good to look back at your progress through the months!
It helps you assess your investments
Knowing your net worth is beneficial if you invest regularly (like me!) as it can help you assess exactly how well (or not well) those investments are doing on a month-to-month or quarterly basis.
For example, if you saw that you lost money in your Roth IRA, maybe you would want to rebalance your portfolio in order to make back that money that you lost. (Of course it also depends on the market, but switching up your portfolio has its benefits too.)
How to Track Your Net Worth
Now that you have three solid reasons to track your net worth, what are you waiting for?! It’s time to track your net worth now!
The best part is that you can track your net worth in a few different ways. The first way is my personal favorite – using an app or website that integrates with all of your accounts. I use Personal Capital, but there’s also Monarch Money and Mint, to name a few.
Or you could always do it the old-fashioned way – by using a pen and paper or Excel.
It’s totally up to you and your preferences. As long as you get started, it really doesn’t matter how you track your net worth!
Final Thoughts
I believe tracking your net worth is a crucial part of your wealth building journey, as it certainly is for mine.
It will help you realize how well (or not well) of a place you are in financially, track your financial progress, and assess your investments.
Let me know in the comments if you track your net worth monthly and how you track your net worth, either on a spreadsheet or an app.