Your net worth is calculated as follows:
Net worth = Assets - Liabilities
Assets include any type of cash or income-generating vehicles such as investments, 401(K)’s, IRA’s, and 529 plans.
Liabilities are payments you owe or debt such as credit card bills, mortgages, student loans and car payments.
Why you should track your net worth like a hawk
As someone who was never intrinsically motivated by money, tracking my net worth wasn’t a natural instinct. Deep down, it felt a little vain. Getting into the habit of keeping this in check though has become one of the key motivators towards managing my wealth and is now something I look at almost every day. Here is why you should be taking a look at your net worth as well:
1. It provides a bird's eye view of your financial standing
Net worth is a quick and easy way to gauge where you are financially and how you are progressing over time.
2. It can keep your financial affairs organized
To maintain the most accurate data, net worth requires you to be exceptionally organized in tracking all of your financial accounts. Doing so will ensure you are staying on top of your accounts and addressing anything that may not be working for you.
3. You may get a major reality check
OK, let’s address most likely the biggest mental block towards managing net worth - its actual value. You may be pleasantly surprised or utterly horrified. I get it. The empowerment you'll feel of regaining control though will overcame any fears you had of the unknown. Trust me.
4. It can help you set achievable goals
While not all circumstances are in your control, knowing your net worth can help you plan out educated targets around historical market returns, income, and expenses. As we begin a new year, it has been a great reference for me to forecast where I could be by the end of the year.
Tools for tracking net worth
The net worth calculation make look simple enough but aggregating all of your accounts might be another story. Set aside some time to clean out your closet of financial assets Marie Kondo style and get them all on the table.
Some of the main categories are:
Thanks to technology, there are many tools out there that help track your current and historical net worth. The one I’ve personally found most useful is Personal Capital.
Personal Capital is a free tool that aggregates all of your financial accounts to calculate your net worth in one single view. It also pulls and stores transaction-level data so that you can see a history of your income and spending.
Personal Capital also offers a number of other free features on its platform to manage your saving, investments, and retirement planning of which I will cover in future posts.
There's no free lunch
If you are wondering how Personal Capital makes its money, it’s through its wealth management services. A financial advisor may reach out but you are free to decline and can continue to use Personal Capital’s free services.
Personal Capital was seriously a game-changer for me when it came to tracking my money. I felt like I finally had a handle on all of my accounts and a place to quickly view my financial assets on a daily basis.
Tracking your net worth is a great starting point towards gaining control of your finances and building long lasting wealth.
Sign up for Personal Capital here and earn a $20 Amazon gift card when you link a qualified investment account.