Do you know the value of your assets? How about your liabilities? Here are 4 reasons why you should track your net worth.
I believe that it is important for everyone to track their net worth.
What is net worth? Basically, it is your assets (what you own) minus your liabilities (what you owe).
Assets include:
Cash, bank accounts, CD’s, real estate, retirement accounts (401K’s, IRA’s, etc.), 529 plans, investments such as stocks and bonds, precious metals, vehicles, and/or anything of value you can reasonably sell (like jewelry or valuable artwork, etc.)
Liabilities include:
Mortgage debt, student loans, auto loans, credit card debt, personal loans, consumer financing, and/or anything you owe money on.
With that knowledge in hand, let’s move on to 4 reasons why you should track your net worth.
1) View Your Overall Financial Health
Your net worth is an important metric in that it gives you the big picture of your overall financial health.
With basic addition and subtraction, the numbers will not lie.
If your assets are greater than your liabilities, you have a positive net worth. You’re in the green!
If your liabilities are greater than your assets, you have a negative net worth. You’re in the red!
This could be the shock and motivation you need to get you finances in order.
You will see that your overall financial health is not measured by how much money you make at your job. Your salary and your net worth are two different things.
If you make $250,000 per year, but you spend just as much and owe twice that amount, you have a negative net worth. You are in the red!
2) Provides a Measure of Your Progress
You net worth will likely fluctuate daily (even hourly). However, if you track your net worth for a long period of time you will notice trends.
Are you moving in the right or wrong direction with your finances?
Over the months and years, you will have a visual of growth or decline that you can use for financial planning.
Furthermore, you will have specific categories of assets and liabilities as well as a visual of the progression of each one.
For example, is the value of your stock portfolio increasing? How much of a percentage of your overall wealth are bonds? Has your credit card debt increased over the year while your auto loan was eliminated?
These are all things you can track the progress of when you start tracking your net worth.
3) Make Better Financial Decisions
When you have all that information for tracking your net worth and can monitor the progress of your assets and liabilities, you now have the opportunity to make better financial decisions.
You will easily see what financial decisions improve your long-term wealth and which decisions destroy your long-term wealth.
By developing a long-term outlook on your finances, you will better at preparing your eventual retirement.
If your assets also generate a cash flow (like dividend stocks and renting real estate does) then you will be in even greater financial shape.
You can funnel that cash flow back into building those assets and grow your net worth further.
Early retirement could easily become an option should you invest in assets that generate cash each month.
4) Housing, Loans, and Mortgages
I am not a big fan of taking on debt. In fact, I actively avoid debt. But I get there are sometimes when it is necessary.
One of the things lenders will look at for loans or mortgages is your net worth to determine if you qualify.
What assets do you have? And more importantly, what other liabilities do you have? Can you pay them back?
Ultimately, your net worth will affect the interest rate you may get on that loan.
If you are looking to purchases apartments or housing in certain area, you net worth will become an important factor.
When I bought my Co-op apartment I had to be approved and interviewed by the buildings board, all of whom reviewed my finances which I submitted in an organized package.
My positive net worth and zero liabilities were a key factor in qualifying me to purchase the apartment.
Conclusion
And there are 4 reasons why you should track you net worth!
When I posted my last net worth report back in August 2021, I had just crossed over the $400K mark.
I happily have no debt and the bulk of my net worth is in assets that produce a cash flow each month.
Over the past 5 years, I’ve built a six-figure portfolio that generates a yearly average of over $1,000 per month in dividend income!
That is passive income that I earn while I sleep!
If you are interested in beginning your own journey into dividend growth investing, personal finance, and financial freedom, check out my Getting Started page.
Also, don’t forget to Subscribe for more great content and updates on my financial journey! 🙂
So, how about the rest of you? Do you actively track your net worth? Also, any other good reasons you’d like to add?
Let me know in the comments below!
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