Have you ever wondered how much money you have in total? Not just the cash in your wallet or your piggy bank, but everything you own and owe? That total amount is called your net worth. Tracking your net worth is like having a financial report card, and it’s super important for a few reasons. Let’s dive in and see why keeping an eye on your net worth matters!
What is Net Worth?
First, let’s understand what net worth is. Your net worth is the difference between what you own (your assets) and what you owe (your liabilities). Assets include things like your savings, any investments, and valuable items like a car or a house. Liabilities are things you owe money on, like a car loan or credit card debt.
Here’s a simple formula:
Net Worth = Assets – Liabilities
Why is Tracking Net Worth Important?
1
Know Where You Stand
When you track your net worth, you get a clear picture of your financial situation. It’s like knowing your grades in school. Are you doing great, or do you need to improve? Knowing your net worth helps you see if you’re on the right track to reaching your financial goals.
2
Set Goals and Stay Motivated
Tracking your net worth helps you set financial goals, like saving up for a big purchase or paying off debt. Seeing your net worth grow over time can be really motivating! It’s like leveling up in a video game – each level you reach shows you’re making progress.
3
Spot Problems Early
By keeping an eye on your net worth, you can spot financial problems early. Maybe you’re spending too much or taking on too much debt. If your net worth is shrinking, it’s a sign you need to make some changes. Catching these issues early can prevent bigger problems later on.
4
Make Better Decisions
When you know your net worth, you can make better financial decisions. Should you buy that new gadget or save the money instead? Understanding your net worth helps you see the bigger picture and make choices that improve your financial health.
5
Prepare for the Future
Tracking your net worth helps you prepare for the future. Whether it’s saving for college, buying a house, or planning for retirement, knowing your net worth helps you plan ahead. It’s like having a map for your financial journey.
How to Track Your Net Worth
You can use a notebook, a spreadsheet, or even apps designed to help you track your net worth. Tracking your net worth doesn’t have to be complicated. Here are some simple steps to get started:
List Your Assets
Write down everything you own that has value. Include your savings, any investments, and valuable items. Assets include real estate, stocks, bonds, mutual funds, savings accounts, retirement accounts, cash, art, watches, collectibles, vehicle's blue book value, and precious metals. (Don't include anything you won't sell or other people won't buy)
List Your Liabilities
Write down everything you owe. Include any loans, credit card balances, and other debts. Debts include mortgages, student loans, credit cards, auto loans, personal loans, HELOCs, medical debt, payday loans, tax debt, installment loans, IOUs, and utility bills.
Calculate Your Net Worth
Subtract your liabilities from your assets. The result is your net worth. Net Worth = Assets - Liabilities
Update Regularly:
Check your net worth regularly, like once a month, and track how it changes over time. This will help you evaluate whether your efforts are working.
Recommendations
You can track your net worth for free with our free Google spreadsheet. If you are looking for a more automated way to track your net worth, then we recommend downloading Rocket Money for your phone. Rocket Money Premium is the cheapest net worth solution at only 36 dollars a year. (As of July 2024)
Conclusion
Tracking your net worth might seem like a grown-up thing, but it’s important for everyone, even if you’re starting to think about money. It helps you understand your financial situation, set goals, spot problems, make better decisions, and prepare for the future. So, start tracking your net worth today and watch your money grow. The higher your net worth grows, the better your quality of life.
