Net Worth: Why You Need to Know It—and Grow It
When you hear the term “net worth,” they probably conjure up images of oil tycoons and Wall Street bigwigs—you know, those folks who have more money than many third-world countries.
But tracking net worth shouldn’t stay relegated to the realm of billionaires because the concept actually has nothing to do with gratuitous wealth. Rather, net worth is simply the difference between your assets and your liabilities.
To figure out your own net worth, you need to tally up all of the money that you have and the value of the things you own. This includes what’s in your checking, savings, retirement and investment accounts, as well as the market value of property that you own, including your home, your car, and even jewelry and collectibles.
Once you have these figures, then subtract all of the money that you owe, such as credit card debt and what’s left to pay on your student loans, auto loans and mortgage. The remaining balance is your net worth. If you have more than you owe, you have a positive net worth. Conversely, if you owe more money than you have available to you, you have a negative net worth.
Seems easy enough to calculate, right? (And remember that you can have it automatically tabulated in the LearnVest Money Center after you’ve linked your various accounts. If you’re a premium subscriber, you can even track changes in your net worth month by month via your progress board.) Yet many of us don’t know what our net worth is—much less keep tabs on it. But this simple equation is important because it gives you an easy way to answer a key question: How’s my money doing?
Why Your Net Worth Is Worth Knowing
Natalie Taylor, a Certified Financial Planner™ with LearnVest Planning Services, lists net worth as one of the top three numbers you should keep track of, along with your credit score and shorter-term monthly savings targets. It’s because “net worth is a nice measurement of progress,” Taylor says. “Trends in net worth are more powerful than your actual net worth—so it’s more important to know if your net worth is more positive today than it was, say, six months ago.”
This also means that you don’t have to stress too much if you’re currently in the red—what matters more is that you’re making your way steadily to the black. The reality is that a negative net worth isn’t something to be ashamed of, especially in the wake of large student loan burdens and a housing crisis that left many homeowners underwater.
“Some of these situations just are what they are,” Taylor says. “But as long as you’re working diligently toward paying down your debt and not accruing more of it—and making savings contributions—then a negative number isn’t as much of a concern.”
Think of it this way: Your net worth is a snapshot of your overall financial health. So the more you narrow the gap between positive and negative net worth, the more your vital signs are improving. After all, you can’t expect to go from the couch to running a marathon in a week’s time.
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