Okay, let’s discuss its never-ending favorite of mine—net worth. Well, it sounds
like something only millionaires can afford to worry about, doesn’t it? For
example, what business does a normal human being fighting bills and watching
Netflix series have to worry about a “net worth”? But that is where we have gone
wrong with it!!! Net worth tracking is for everyone and can be a really
empowering process once you start understanding how it is done. Therefore, and
here comes the breakdown in the simplest and most enjoyable way possible.
What is Net Worth?
First things first: net worth is more of a pretty word that people use to mean
assets less liabilities. It is similar to a report card financially and seeing with a
glance if you are winning or losing the game of being an adult.
Assets: This is everything you owe that is valuable as per today’s market prices:
cash, investments, property, stamp collection your uncle told you was valuable
and much more.
Liabilities: This is all that you are owned on—the student, credit card, car, and
café bills.
So, the basic formula is:
Net worth = total value of total assets subtracted by total liability.
If your assets are more than your liabilities, good news! You’re in the positive,
and your net worth has more shine than your phone in the middle of 2 am.
Why Track Your Net Worth?
Consider it your financial report card, but nobody will be hauling you over the
coals for your performance. Here’s why it’s worth keeping an eye on your net
worth:
It’s Like a Fitness Tracker, But for Your Money: Managing your net worth helps
you see that you are at this point, that specific aspects are good or bad, and that
you need improvement in some areas. Amazon Glow is like having a Fitbit for
your bank account!
Goal Motivation: Perhaps you want to purchase a home, leave work at fifty-five,
or not freak out at the prospect of the trendsetter’s cocktail bruschetta and
mimosas. It tracks your net worth, which makes it more tangible as to how you
are doing.
Reality Check: Most of us have some sort of idea about how we stand financially
on the better or worse side of things. Realizing your net worth in print (or on a
green MS Excel sheet) is like taking a picture of your financial position. Spoiler:
It’s not as evil as you may think it is.
Step-by-Step: How to Track Your Net Worth
Ready to dive in? Here are the steps when it comes to preparing it, even for a
tired, stressed-out human being.
Step 1: List Your Assets
Conduct a little “financial hunt” and list out all the things you possess that have a
dollar value. Include:
Cash: Positive, current, and passion savings account, checking, and actual cash
money piggy bank.
Investments: including but not limited to stocks, bonds, mutual funds, and any
other investment. And if you do hold crypto, hey, throw that in the mix as well.
Retirement Accounts: Every retirement plan, such as a 401(k), IRA, and that
account, you are told, you will never have to use.
Properties: If you have any other properties, you should provide its visitor
assessment of real estate based on its current market price.
Vehicles: If you own the car, motorcycle, or even a boat (you lavish, you!) indicate
the resale value.
List all these assets and then total the amount.
Step 2: List Your Liabilities
Okay, time for the slightest bit less exciting next step. Now one we ought to take a
gander at, at least, known as liabilities or otherwise known as the holes you’re in.
Here’s what to consider:
Credit Card Debt: The amount of money kept on your credit cards for use.
Student Loans: Everyone knows that student loan crisis exists. Indicate any
amount that you have left to transcribe here.
Mortgages: If you have a mortgage, include the balance you continue to pay.
Car Loans: If yes, that is fine; if you are still repaying for your car, add that.
Personal Loans: Any other loans? Add those too.
Total up all your debts, which will give you the figure quantitative known as “I
owe.” Deep breath—you got this!
Step 3: Calculate Your Net Worth
Here on is the time for verdicts. Use our super fancy formula:
Net worth refers to the total value of assets owned less the total amount of
creditors claims on such assets.
Add up all the sums of the asset column, then bring down your total sum of the
liabilities column. Voilà! You have just determined your net worth.
Example Time!
Let’s say you have:
Assets totaling $50,000
Liabilities totaling $20,000
Hence, your net worth = cost = $50,000 – liability = $20,000 = $30,000
Not bad, right? You’ve got a positive net worth and thus a clear view of where you
stand in your financial situation.
The beauty of tracking it is that you do so on a regular basis.
Chalking this up to an annual event is good enough, but the beauty of it comes
when people involve net worth tracking as a regular affair. Here’s why:
You Can Spot Trends: Perhaps you see that your net worth increases each time
there is a bonus or decreases after the summer holidays. It is important that you
identify trends that are being looked at so that you are able to change your
spending and saving habits.
It Keeps You Accountable: This causes an individual to get motivated to continue
striving towards financial goals when you see the progress that has been made (or
when there has been none). Imagine it more like a reminder of sorts—a way to
help keep you on course in terms of budgeting.
It Helps with Goal Setting: Suppose your goal is to get an increase in your net
worth by $5,000 this year. They let you know you’re on the right track and show
you the tiny things that make the most significant difference.
Tips to Boost Your Net Worth
Once you’ve begun tracking, you get to watch that number increase, which is the
most exciting part. Here are some ways to help boost your net worth:
Increase Your Savings Rate: Easy for one to say but it is actually one of the most
effective ways to start building your wealth; save a little more each month.
Invest wisely: If you’re yet to save, then start, but if you’re already saving, then
start investing. This one has been historically good at giving a return in the long
run but always remember to check the fine print (or ask an expert).
Pay Down High-Interest Debt: If you have debt, particularly high-interest credit
card debt, try to pay it off as soon as possible. It all feels almost dirty—it’s like
mainlining the amount of cash that you’re worth straight into your veins.
Grow Your Income: It could mean asking for a salary increment, beginning an
extracurricular business, or getting independent jobs. Additional levels of income
enable you to give more of a boost to your financial campaign.
Why Use Tracking Tools for the Laziest People? (We Found You)
No longer do you have to work through numerous sheets of Excel or create
intricate formulas; it’s the app generation! Here are a few tools that make net
worth tracking as easy as ordering pizza:
Personal Capital: It is completely free to use and contains an elegant net worth
tracker.
Mint: Ever handy for net worth management and overall budgeting.
YNAB (You Need a Budget): A budgeting app that is ideal for anyone who takes
personal finance very seriously as it includes a net worth component.
I find that these apps can link to your accounts and adjust the net worth on their
own. Especially useful for anyone who doesn’t particularly want to go through the
bother of mental arithmetic each second.
Final Words: Keep it Real, and Have Fun
It doesn’t mean that to track one’s net worth, one needs to monitor the minutiae
of every single dollar. Something just tells me that life is far too short to worry
about the pennies spent or the lattes being consumed. The act of tracking net
worth is similar to an honest scorecard in a game that will help you see your
financial situation plainly. We also should beat the numbers, study them, and
move on.
And remember: net worth is just a number. It doesn’t determine your value as a
human being, your abilities, or your capabilities. And, at its core, it’s just an
economic instrument that directs someone to the desired destination. Therefore,
tally up all those assets, wipe off all those liabilities, stand up, and pat yourself on
the back. Well there you have it; you are now tracking your net worth like a pro.