How to Start Tracking Your Net Worth

Net worth is an important number that is not just reserved for high-profile people. Everyone has a net worth whether it’s positive or negative. It’s important to track your net worth because this number represents the assets you actually own.

Determining your net worth can help you decide when to retire or simply help you see the bigger view of your entire financial situation. Luckily, calculating and tracking your net worth is very easy. Here are some steps to help you start tracking your net worth along with some tips to help you increase it.

Calculating and Tracking Your Net Worth

The formula for calculating your net worth is simple: assets – liabilities. However, it’s important to make sure you’re coming up with the correct numbers and not leaving anything out. Here are some easy steps to follow.

Add Up All Your Assets

Assets are things you own which tend to increase your net worth. This can include things like property, investment accounts, savings account balances, and so on. Some people even include their vehicle’s value along with jewelry and collectibles. For non-monetary assets, determining the value can be challenging. Consider how much you could sell the item for if you had to right away.

With your home, you may be able to check an estimated value online through sites like Zillow or Trulia. There are also sites that can estimate your vehicle’s value.

Add Up All Your Liabilities

Liabilities represent the things you owe like debt. Have credit cards or a personal loan? What about a car loan or mortgage? Even student loans count as liabilities. With your

Subtract Liabilities From Assets

Once you have your totals, simply subtract the value of things you owe from the value of things you own. This is the time where you’ll subtract the remaining balance on your mortgage from the total value of the home to see the difference.  The total you come up with is your current net worth.

Depending on the numbers, your net worth can be positive or negative. If you’re using a money management platform like Personal Capital, you can connect all your accounts and it will calculate your net worth for you.

Start Tracking Your Net Worth

Your net worth is constantly changing as your financial situation changes. This is why it’s important to get into the habit of tracking your net worth. People do this in a number of ways. You may do it online through a service like Personal Capital. That way, your net worth can update automatically as your liabilities and assets change. Or, you can use a spreadsheet and update it monthly. Once you have a good idea of what your assets and liabilities are, you’ll be able to update them quickly each month.

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Why You Should Be Tracking Your Net Worth

There are many reasons why you might want to start tracking your net worth. However, many people place this task lower on the priority list. Here are a few key reasons why you should be tracking your net worth.

Measures More Than Your Income

Your income is important, but your net worth measures so much more than that. There’s nothing wrong with striving to make more money. But if you don’t pay attention to where that money is going, that can become a problem. Instead of tracking how much you earn, your net worth tracks how much you keep which is far more important in the grand scheme of things.

Often, people who live paycheck to paycheck track their income while people focused on building wealth will track their net worth. It’s important to be able to pay your bills and meet your immediate needs. Once you’re able to budget and to that, start focusing on being strategic with your money. The goal should always be a positive net worth which means you own more than you owe.

Motivates You to Pay Off Debt

Another reason to start tracking your net worth is that it can motivate you to pay off your debt. It’s one thing to know you have a few loans or credit cards. But when you add everything up and see your total debt, that could be a little unsettling. What’s great is that if you track your net worth and consistently pay down your debt each month, that number should increase. This means you’re improving your assets and reducing liabilities.

Tracking your net worth for debt payoff can be a great way to make your goals visual.

Demonstrates the Importance of Investing

Maybe you know that you need to be investing but it’s not that high on your radar. When you track your net worth, it can make investing exciting again. Yes, your numbers may not skyrocket overnight especially if you’re playing the long game. Still, imagine having the ability to compare your net worth from previous years and see how your investments have grown.

Experts always say that the stock market bounces back, but you can have a personal example of this if you track your own net worth. This could be a motivating way to continue investing more often.

Great Indicator of Your Overall Financial Wellness

Your net worth is one of the best indicators of your overall financial wellness. Typically, the higher your net worth, the more financially secure you might seem. If you have a good amount of assets and different types of accounts and items you own, this can also reflect positive money management habits. On the flip side, a low or negative net worth could help you narrow down certain areas for improvement.

Summary: Tracking Your Net Worth Is Important But Doesn’t Reflect Your Actual Worth

Net worth should never reflect your self-worth. Regardless of how much you have in the bank or which debts you’re carrying, there’s no need to beat yourself up about what your net worth looks like today. It’s just a number and it can be used to help you improve your financial situation.

Just the simple act of tracking your net worth can help you start to increase that number and your level of financial security.