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How to Track Your Net Worth and Why It Matters

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How to Track Your Net Worth and Why It Matters

July 15, 2023

Let’s be honest, the words "net worth" can feel a little intimidating. It’s often associated with wealthy CEOs and millionaires. But the truth is, tracking your net worth isn't just for the elite; it’s a fundamental step toward taking control of your financial future, no matter where you're starting.

What Exactly Is Net Worth?

Simply put, your net worth is the difference between what you own (assets) and what you owe (liabilities).

  • Assets: These are things you own that have value. Examples include:

    • Cash in savings accounts and checking accounts
    • Investments (stocks, bonds, mutual funds, real estate)
    • Retirement accounts (401(k), IRA)
    • Vehicles (cars, boats)
    • Valuable possessions (jewelry, art)

  • Liabilities: These are your debts. Examples include:

    • Mortgages
    • Student loans
    • Credit card debt
    • Auto loans

Calculating Your Net Worth

Here's the basic formula:

Net Worth = Total Assets – Total Liabilities

How to Actually Track It

There are a few ways to keep track of your net worth:

  1. Spreadsheet: The simplest and most customizable method. Create a spreadsheet with columns for each asset and liability, and update it regularly.
  2. Net Worth Tracking Apps: Several apps like Mint, Personal Capital, and YNAB (You Need a Budget) offer net worth tracking features. Many connect directly to your bank accounts and investment accounts, automating the process.
  3. Manual Tracking: If you prefer a more hands-on approach, you can simply keep a running tally in a notebook.

Frequency Matters!

Aim to update your net worth at least quarterly, or even monthly, for a more accurate picture. Life changes (salary increases, new investments, unexpected expenses) will impact your net worth, so regular updates are crucial.

Why Tracking Your Net Worth Matters

  • Provides a Clear Financial Picture: It shows you exactly where you stand financially.
  • Identifies Areas for Improvement: It highlights where you’re losing money (high-interest debt) and where you can invest more effectively.
  • Motivates Goal Setting: Once you know your starting point, you can set realistic financial goals (e.g., paying off debt, saving for a down payment, investing for retirement).
  • Tracks Progress Over Time: Seeing your net worth grow over time is incredibly motivating!

Don’t Be Discouraged!

It's okay if your net worth isn’t huge right now. The important thing is to start tracking it and making informed decisions about your finances. Small changes over time can make a huge difference.

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