If you’re not tracking your net worth, here are 9 reasons why you should

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By: Marc | Vital Dollar

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.

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 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.

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.

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.

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 is 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.

5. Provides Motivation to Eliminate Debt

Every time you look at your liabilities listed it will give you the 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 have an impact. Maybe you have some student loans, credit cards, a mortgage, and a car loan. None of that debt seems too bad on its 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.

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 save money and increase your net worth.

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.

Republished with the permission of VitalDollar.com.

4 thoughts on “If you’re not tracking your net worth, here are 9 reasons why you should”

  1. Only one measure greater than net worth is net investable worth (net worth minus non investable assets such as primary home, cars, furniture, etc). You could own a million dollar house, but have zero in the bank. Would you be a millionaire?

  2. I have been tracking my net worth for 20 years. All the benefits you note are correct.
    Your article is actually very timely. I am 701/2 rears old and have been mostly retired for the last 3 years. Last year I actuated a Annuity which pays me a monthly check for twenty years and I started collecting social security last November. How does one quantify these two money streams in their net worth ?

  3. Tracking is great, however remember these are historical i.e. backward looking. Also its important not to obsess. I learnt when swimming competitively that the more I rated and paced myself myself against others (another form of bench marking) the slower my progress was. As compared to the more I just went out and raced the best I could the faster I became.
    So yes bench mark occasionally just to see your progress but remember it’s more important to get in the pool and give it your all and while your doing that forget about your competition.

  4. Tracking your net worth helps you become rich. I’ve been tracking my net worth since I graduated from college with a negative net worth to $10,000,000+ today in my 30’s. If you are not tracking your net worth, that means you are not concerned about it. If you are not concerned about your net worth, then you will not focus on maximizing it. Tracking your net worth puts it front and center for you.

    Can you lose weigh if you don’t track what you eat? The answer is most likely not. The same with wealth building. Can you build wealth without tracking your net worth? The answer is most likely not.

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