Your Net Worth and Why You Need to Track It
Knowing your net worth is the first step required to pay off debt or build wealth. Net worth is the value of your assets (the things you own) minus your liabilities (debt). When paying off debt it is crucial to know where you are starting from in order to establish a plan and track your progress. If you are debt free and focused on building wealth, tracking your net worth will let you know where you stand with your goals month to month.
What Should Be Included In Your Net Worth
There are fundamental items that need to be included in your net worth and others that are less important but can be included if you desire.
Retirement & Investment Accounts
Savings & Checking Accounts
House and/or Property
Note (1) – I personally choose to exclude cars as an asset. They’re continually losing value and I don’t want to be bothered with updating the market value every few months. Cars are hopefully a small portion of your net worth. If do you choose to include them that’s fine.
Tracking Your Net Worth
Tracking your net worth doesn’t require a fancy piece of software. It can be accomplished with a basic Excel table or a handwritten sheet that you update at the end of each month. The following is a sample that could be used as a guide, the numbers are for demonstration purposes only.
Your net worth is what you would have left if you sold off all your assets. If you are young and starting out it is likely that your net worth is negative. Student loan debt or a new mortgage could easily drive your total number negative. The number itself is not as important as being aware of the progress up or down as time passes. Understand that if you choose to monitor your net worth monthly, investment accounts may make this number slightly volatile. Record monthly but review your numbers on a quarterly or yearly basis. Your net worth is the benchmark that will be utilized throughout your financial pursuits.