Should You Track Your Net Worth?
Not many people calculate their net worth annually or any at all, however it’s one of the first things googled about every celebrity. What about you? How much are you truly worth, not your quality of life but your value. Your net worth is the amount by which your assets exceed your liabilities. Therefore the higher your liabilities, potentially the lower your true value. Car loans, student loans, mortgages, other loans all increase your liabilities. In simple terms, net worth is the difference between what you own and what you owe. If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities are greater than your assets, you have a negative net worth. Do you think there are people out there with negative net worth? Can you owe more than you own?
Your net worth gives a snapshot of your financial situation at any point in time. If you calculate your net worth today, you will see the end result of everything you've earned and everything you've spent up until that moment. Most fiscally responsible individuals calculate their net worth annually to figure if they are on track or need to make some adjustments. Tracking your net worth provides a financial report card that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.
The simple formula is: Assets - Liabilities = Net Worth
Your assets are anything of value that you fully own that can be converted into cash. This include cash, savings, investments, property and other personal property. Your liabilities represent your debts which includes loans, mortgages, credit card debt, medical bills, utilities and student loans.
Sometimes it’s challenging to find the accurate values to all of your assets However, make conservative estimates to avoid inflating your net worth. For example, to assign the correct value for your home, use a comparable price to similar homes in your area that have recently been sold.
If your net worth figure is negative, it means you have to make a lot of changes. Ideally, your net worth continues to grow as you age - as you pay down debt, build equity and acquire more assets.