It’s the first week of the month and that means time to track Net Worth!
Over the years, tracking my net worth has become my monthly hobby.
I remember the A-ha when I got it that Net Worth is NOT the same as Income. This was never more obvious to me than when I lost my job/income earlier this year. Good news is that by focusing on specific goals, our Net Worth has actually improved. That's right, even with lower income this year, our Net Worth improved. All thanks to how tracking it helped us make confident choices. But first, this is no joke......
Net Worth and Income walked Into a Bar....
I've come to think of Income and Net Worth as cousins. They are super important to each other and each valuable in their own right. But they have very different personalities and purposes.
Income is sexy and fun. He is over at the bar buying a round of drinks and telling jokes. But Income is only the life of the party...as long as there is a party. Left alone, Income reaches out to Net Worth to find out what the heck is actually happening?!
Net Worth is the quiet cousin. She is at a table by the window with a few close friends. She is wicked smart and super clever. Good thing she really likes the excitement of hanging out with Income, because he gets empowered when they get together.
Some people, like Debt and Credit, are intimidated by Net Worth. They think she might be a snob or too smart for them.
And when the party is over and Income goes home, Net Worth is content by herself. Sure, it is a heck of lot more fun when Income is around. But that's ok. She's got this. She's not even going to invite Debt or Credit over.
Calculating Net Worth vs. Income:
It is easy to calculate income. Just take a look at your paycheck.
You likely have been tracking income, at least mentally, over your entire career.
Calculating your net worth does take a few extra steps. But once you get in the habit, tracking your Net Worth might be your new favorite hobby.
To start, there are lots of online Net Worth calculators . But I prefer to just use a spreadsheet on my laptop. I save the file so it is easy to track see my results over time:
List the values for each of your physical assets that can be sold for substantial cash. IE house, cars and equipment.
Then list the value of each of your money accounts IE: retirement, savings, stocks, etc
Adding the value of tangible goods to money accounts totals your "assets".
Next, list the amount of each of your debts (mortgages, student loans, credits cards, etc) The sum of these debts is equal to your "liabilities".
Subtract Liabilities from Assets...
Ta Da...You just calculated your Net Worth!
Benefits of Calculating Net Worth
I used to think that Net Worth was something only middle age accountants had, let alone tracked. I assumed it did not apply to me. I probably wasn't worth anything anyway, so why bother? Plus remember the quiet cousin? Net Worth is kind of intimidating, right?!
But then I learned that Net Worth is a tool for everyone and only chasing income as a measure of my success was limiting. Learning Net Worth is a tool I could use to get ahead was a game changer!
So go ahead use all the tools, you are worth it! And maybe your number is negative (it's possible), or better yet, higher than you imagined. But it might be lower than what you wanted to see too. That happens. Doesn't matter. There is no right or wrong answer. Comparing your number to anyone else's is a loosing game. Focus on your own plan and you will always win.
Should you invest more in savings?
Is now a good time to pay down more debt?
Or maybe you want to purchase or upgrade a physical asset.