There are a lot of different numbers and metrics involved in personal finance. Income, net worth, savings rate, credit score, and many others.
While they all have a place, net worth is often overlooked and not emphasized. But really, in terms of finances, what matters more than net worth?
Tracking your net worth is easy, but few people take the time to actually do it. And even fewer people track net worth consistently.
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There are a lot of reasons that you should pay close attention to your net worth, and in this article we’ll look at 9 of the most convincing.
Why You Should Track Your Net Worth
1. Good Indication of Your Overall Financial Health
Net worth is the most important number or metric for measuring your overall financial situation because it takes a big picture approach and looks at everything. Looking only at assets might make you feel good, but in reality, you also need to look at liabilities to put those assets into perspective.
Likewise, your net worth can put liabilities into perspective. Maybe you have some debt, but when you look at the big picture it’s not that bad because you also have assets that put you into a pretty good overall position.
2. More Important Measurement Than Income
A lot of us tend to think about income before considering net worth. The amount of money that you make is a part of your overall financial picture, but it’s not as important as your net worth.
We all know people that have great incomes but spend it all, and not on assets that retain any value. If you look only at income these people might seem wealthy. But in reality, they will never build net worth if they’re not using their money wisely.
On the other hand, someone can earn an average salary their entire working life and still wind up with an impressive net worth. How you manage your money may not impact your salary at your job, but it will have a huge impact on your net worth.
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3. Provides a Measurement for Your Progress
If you calculate and track your net worth it can serve as an excellent source of motivation. Hopefully you have a long-term net worth goal that you want to hit before retiring. Tracking your net worth makes it easy to see how you are progressing. If you’re not progressing fast enough you’ll know about it, and you’ll have time to take action and address the problem.
I’ve only been consistently tracking my net worth for about a year now, but I’ve already seen a huge impact in terms of motivation to see that number increase. I was always motivated before, but tracking my net worth has helped to see that I’m on track, and that only makes me want to keep going and accelerate the pace.
You can also use it to see how you stack up against others.
There is a saying that if you don’t measure it, you can’t improve it. Tracking and measuring your net worth gives you the best chance to improve it and reach your goals.
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4. Emphasizes the Importance of Your Investments
It’s always nice to check your net worth and see a significant increase simply because your investments are doing well. When the value of your investments are dropping it can be hard to watch. But these situations help to make it obvious how important your investment decisions are. How you invest and manage your money is just as important, if not more important, than how much you make.
A few years ago my wife and I had some money sitting in a conservative investment for a year while the stock market was going through huge growth. It was kind of depressing to think about how much money we missed out on during that time, but it helped to solidify the importance of our investment decisions.
It’s worth taking the time to educate yourself about your money and investments. You’ll feel more comfortable about it, you won’t need to pay an expensive financial advisor, and you’ll be rewarded over time with a better net worth.
Personal Capital is a free app that makes it easy to calculate and track your net worth. It links to your financial accounts and provides you with plenty of helpful, relevant information. Right now you can get a $20 Amazon gift card just for creating a free Personal Capital profile and linking at least one financial account. Get started here.
5. Provides Motivation to Eliminate Debt
Every time you look at your liabilities listed it will give you motivation to get that debt paid off, and to stay away from debt (as much as possible) in the future. Sometimes it’s the overall number of the liabilities that has an impact. Maybe you have some student loans, credit cards, a mortgage, and a car loan. None of that debt seems too bad on it’s own, but when you look at the total of your debt and how it impacts your net worth, it can be shocking.
One of the reasons I recommend checking your net worth every month or every quarter is to get constant reminders. Hopefully, you’re also getting some motivation as you see those liabilities going down and your net worth going up.
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6. Results in Better Use of Your Money
Tracking your net worth can help you to make better decisions with your money. If you know you’re going to be measuring and tracking that net worth in the future that thought might stick in the back of your mind when you’re tempted to make a bad decision with your money.
If you are making an effort to track your net worth you obviously care about your financial health. The concern that you have will work in your advantage because you’ll want to see progress, and that will lead you to make decisions that will increase your net worth.
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7. Shows the True Impact of Your Financial Decisions
By tracking your net worth you’ll see the impact of your decisions, whether they are good or bad. You’ll see your net worth grow when you decide to increase your 401(k) contributions. You’ll see your net worth decrease when you blow a chunk of money at the casino.
When you’re trying to make a financial decision you’ll start to think about how it will impact your net worth. Of course, we all need to spend money on things that don’t increase our net worth. But by tracking your net worth you will start to see that the big picture impacts your day-to-day decisions with money because you’re paying more attention.
8. Can Help with Getting a Loan
There are times when your net worth may be able to help you get approved for a loan. A solid net worth might help a lender to feel comfortable enough to give you the loan, or possibly a lower interest rate. On the other hand, a negative net worth might scare a lender away.
9. Makes it Easy to Visualize Your Progress Over a Period of Time
Possibly the best benefit of tracking your net worth is that you can easily see your progress over time. Sometimes it’s hard to notice much of a difference unless you go back and look at how far you’ve come from the beginning. If you’re tracking and recording your net worth every month or every quarter you can easily create a chart or graph to see the progress. You may be really surprised at how far you’ve come when you look at it this way!
J. Money from Budgets Are Sexy tracks his net worth every month and shares it publicly. On the site he has a graph showing the progress. I follow his blog, so I see the updates when they come out. But when I look at the chart it’s shocking how much it’s grown and how quickly. It may not always seem like the progress is so significant month-to-month, but when you look at the big picture you can see it.
How to Easily Track Your Net Worth
Now that we’ve look at several convincing reasons why you should be tracking your net worth, you may be wondering what is the easiest way to actually do it.
You can use a spreadsheet if you’d like, but I use and recommend Personal Capital. It’s a free app that gives you a lot of really useful information, including your net worth. In just a few minutes you can link Personal Capital to your financial accounts and it will automatically pull in the data.
Right now you can get a $20 Amazon gift card just for trying Personal Capital. All you need to do is use this link to sign up for a free account, and then link at least one financial account. After you’ve linked an account you’ll get the gift card by email.
So go ahead and get started today by signing up for Personal Capital and check your own net worth. Once it’s linked to your accounts you’ll just need to login to see your net worth at any time. You may also want to occasionally manually update data in Personal Capital that can’t be linked, like your home value or equity.
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