5 Reasons You Need To Track Your Net Worth To Build Wealth

This post may contain affiliate links. Please read our disclosure for more info.

Before starting our financial freedom journey, we had no idea why we needed to be tracking our net worth. In fact, we weren’t even entirely sure what our net worth number meant or how to calculate it. We just ignored it altogether. After diving head first into the FIRE/FIOR movement, we now know that tracking our net worth is the single best metric for our money and our #1 motivator. 

What Exactly IS Net Worth?

Your net worth is nothing more than your total assets minus your liabilities. First, you need to make a list of all your assets and their values. Next, do the same for your liabilities. Add each column together and subtract one from the other.

As long as you can do simple math, you can calculate your net worth. See the formula below! And if you don’t feel like doing it by hand, don’t sweat it. There are online calculators to help you out.

The Super Simple Calculation

Total Assets – Total Liabilities = Net Worth

Assets And Liabilities To Include

Net Worth | Track Your Net Worth | How To Track Net Worth | Financial Freedom | Financial Independence | Debt Freedom | FIRE | FIOR via @MadMoneyMonsterMy first attempt to calculate our net worth was a total flop. You might be wondering how I could mess up such a simple math problem. I was wondering the same thing. Well, apparently I failed to add one of our assets. A big asset – the equity in our home. That pulled our net worth way down and made me feel a little depressed. Thankfully, I figured out my error and was able to do a simple recalculation. Phew!

Now, there are debates floating around the interwebs as to what you should and shouldn’t consider an asset. Basically, the choice is yours.

Some people don’t list the value of their car because it’s a depreciating asset. Others like to add the value of their vehicle because, well, they own it (or at least a portion of it) and it counts as part of their current assets. It also helps to offset the liability of having a car loan.

Remember, depending on where you are in your life, your net worth might actually be a negative number. Don’t stress about it. Knowing where you stand is half the battle. And by tracking your net worth, you’ll be able to watch as that negative number turns positive. THAT is motivating!

There really is no wrong way to calculate your net worth. Unless, of course, you’re counting liabilities as assets. So, just what is considered an asset and what is considered a liability? Generally speaking, assets and liabilities are separated like this.

Assets:

  • Saving and Checking Accounts
  • Home Equity
  • Retirement Accounts 401(k), IRAs, etc.
  • Investments Held Outside Retirement Accounts
  • Car Equity  (This will likely decrease over time)
  • Cash
  • Anything you own worth considerable value (Collectibles, Jewelry, etc.)

Liabilities:

  • Mortgage
  • Credit Cards
  • Student Loans
  • Car Loans
  • Personal Loans

5 Reasons To Track Your Net Worth

So, if you’re sitting there scratching your head wondering if you should track your net worth, let me tell you the answer is a resounding YES. So without further ado, check out 5 reasons you need to start.

1. Overall Financial Health

Having a snapshot of your overall financial health is unbelievably helpful when you’re trying to build wealth. You can be laser-focused on paying down debt or investing, but by tracking your net worth you’ll actually see your progress in black and white.

2. Motivation To Build Wealth

hiking, trail - track your net worth

Enjoying simple hikes has helped us save money and increase our net worth!

Tracking our net worth has been the single best thing we ever did for motivation.

Whether you’re working on paying off your debt or investing or both, your net worth is going to go UP.

Yes, you read that right. Your net worth is going to go up even if all you’re doing is paying off your car or student loans.

And if you’re in a situation with a negative net worth trying to dig your way out of debt, tracking your net worth will provide massive motivation to keep going.

3. Gauge Your Progress Against Your Peers

By tracking your net worth, you’ll be able to gauge your progress against your peers. Of course, it’s not always the best idea to compare yourself to others. But when it comes to your finances it’s nice to know where you stand.

Just note that most people aren’t reading articles like this and have NO IDEA what their net worth is. So by doing so, you’re setting yourself apart from the crowd. Congratulations! You’re well on your way to building wealth and reaching financial independence.

4. Watch Progress Over Time

Tracking your net worth allows you to see your progress over time. It might not feel like it, but when you’re paying your monthly bills and throwing a little extra toward your loans or house payment, little by little your financial health is getting better. Your personal bar graph is getting taller.

Truth Bomb: I obsessively check our net worth way more than I should, but I can’t help it. I love watching our numbers go up. It’s completely validating to know that taking my lunch to work every day and not buying new clothes all the time is quite literally paying off.

OTHER ARTICLES YOU MIGHT ENJOY:

5. Helps To Control Unnecessary Spending

When you know your numbers and you’re watching your net worth skyrocket compared to your peers, it becomes a lot easier to control unnecessary spending.

I used to think nothing of going out for lunch every single day at work. Now, I think how much that money would be worth if I invested it instead. These days, I’m opting for the latter in a lot of situations. And our bottom line has never been healthier.

So, what are you waiting for? Start tracking your net worth today!

Mad Money Cat - track your net worth

Mad Money Cat knows his number. #smartkitty

How We Track Our Net Worth

Personally, we like our time so we love tools that allow us to Set It and Forget It. Because of our lazy mindset, we use Personal Capital. It’s a well-respected, trusted tool that allows you to track your money, including your net worth, quickly and easily. Oh, did I mention it’s FREE? It is. It only takes a few minutes to enter your information into their secure site/app before you’re up and running.

So if you feel like you might want to track your net worth and don’t feel like fumbling around with spreadsheets, I highly recommend you give Personal Capital a try!

And there you have it, 5 reasons you need to track your net worth to build wealth. Since tracking ours, we have made better decisions and increased our savings rate substantially.

Financial Freedom, here we come!

7 comments… add one
  • Ms ZiYou Feb 1, 2018, 4:20 pm

    Hell yeah, I track networth on a good old spreadsheet that I have good fun updating every month #geek.

    I only wish I started tracking earlier.

    • Mad Money Monster Feb 1, 2018, 4:34 pm

      Woot! I actually still use an old school spreadsheet for stuff, too. 😛

  • Craig Feb 1, 2018, 4:12 pm

    A tool I have found fun to use to track progress against networth compared to peers is Thomas Stanley’s formula, which he talks about in the book ‘Millionaire Next Door’. I found an easy calculator that helps you determine if you could be considered an under, average or prodigous accumulator of wealth for your age:

    http://www.hughcalc.org/wealth.cgi

    Still aspiring to be a prodigous accummulator of wealth (PAW) myself 😀

    • Mad Money Monster Feb 1, 2018, 4:17 pm

      Ah, yes, I loved that book! Thanks for sharing the link.

  • Gino Feb 1, 2018, 9:47 am

    Great article !

    I agree home equity is part of ones net worth, however, I don’t include mine.

    My home is paid off and unlike my portfolio, it’s not generating income. Could it? Yes, if I rented it but that’s not likely as I need a place to live.

    I like to think of net worth as Assets in hand that are producing income. I believe it keeps me more honest as to how I could handle a job loss and pay my bills or if I could retire early.

    Homes are so illiquid and can’t be immediately turned into cash. And if one never moves, it’s just money tied up in bricks and mortar making it a moot point in a way.

    I realize if I sold my house it would generate an amount that I could add to my net worth. But I’m absence of selling, I don’t do it.

    By eliminating home equity in the net worth equation it might motivate to accelerate savings to grow that stock and bond portfolio that can eventually sustain you in retirement or give the options of an early retirement.

    I look at my home equity as icing on the cake of my 7 figure portfolio. That’s what I dislike about homes.

    It’s the only asset that’s not generating income but costs me in terms of upkeep and taxes.

    • Mad Money Monster Feb 1, 2018, 2:54 pm

      Yeah, I agree that homes are a definite gray area. We do count ours but mostly just to offset our last debt – the mortgage. Hoping to have it eliminated completely this year!

Leave a Comment

Show Buttons
Hide Buttons