What is your net worth?

In the realm of personal finance, one term that often gets thrown around a lot is "net worth."   So what is net worth, exactly?  Simply put, your net worth is the difference between your assets (what you own) and your liabilities (what you owe). It’s the best measure I’ve found to comprehensively measure your financial health.  While tracking your income and expenses is crucial for budgeting and financial planning, monitoring your net worth provides a broader view of your financial situation and progress towards your goals. 

Sounds simple enough, right?  Unfortunately, most Americans don’t know their net worth.  According to Credit Karma’s recent survey, 51% of Americans don’t know what their net worth is, or how to calculate it.

Let’s delve into the reasons why tracking your net worth is essential for building wealth and achieving financial success.

1. Your Financial ”True North” Indicator: Your net worth provides a comprehensive view of your personal financial health. It shows you where you stand financially at a specific point in time and helps you understand the relationship between your assets and debts. Awareness of your overall financial health is the first step to improvement. Once established, it enables you to identify areas for improvement, and set realistic financial goals.

2. Enables Progress Measurement: Your net worth serves as a barometer of your financial progress over time. By tracking it regularly, you can monitor how your assets and liabilities are changing and whether you are moving in the right direction. Seeing your net worth grow can be a motivating factor in sticking to your financial plan and making smart money decisions.

3. Identification of Wealth-Building Opportunities: Monitoring your net worth allows you to identify opportunities for wealth building. For example, if you notice that a significant portion of your assets is tied up in low-yield investments, you may consider reallocating them to higher-return opportunities. Similarly, if your liabilities outweigh your assets, you can focus on reducing debt and increasing your net worth.

4. Risk Management: Understanding your net worth can also help you assess your risk exposure and plan for unexpected financial challenges. By having a clear picture of your assets and liabilities, you can make informed decisions about insurance coverage, emergency funds, and retirement planning. This proactive approach to risk management can provide peace of mind and financial security in the long run.

5. Wealth Preservation and Legacy Planning: Tracking your net worth is essential for wealth preservation and legacy planning. As your assets grow, you may want to consider how to protect and pass on your wealth to future generations. By monitoring your net worth, you can make strategic decisions about estate planning, charitable giving, and strategies to secure your financial legacy.

6. Accountability and Discipline: Regularly tracking your net worth encourages financial accountability and discipline. It forces you to confront your financial habits, set priorities, and stay focused on your long-term financial goals. By holding yourself accountable for your financial decisions, you are more likely to make sound choices that align with your values and objectives.

Tracking your net worth over time is a fundamental habit for achieving financial success. It provides a comprehensive view of your financial health, measures your progress, identifies wealth-building opportunities, helps manage risk, supports wealth preservation, and promotes financial accountability. By making net worth tracking a regular part of your financial routine, you can gain clarity, make informed decisions, and pave the way for a secure and prosperous financial future. Start tracking your net worth today and take control of your financial destiny.  The team at Wealth Garden is here to help you with tools, templates, and guidance to complete this vital financial health exercise.