If you’re looking to monitor the progress of your personal finances one way to do so is by tracking your net worth.
Your net worth is the value of your assets minus your liabilities. It’s a measure of how much wealth you’ve accumulated. While this is not a perfect way to measure financial health it can be a good way for you to continually gauge whether or not you’re making progress.
If you’ve never calculated your net worth before it’s a fun exercise. Here’s how to do it.
How to Calculate Your Net Worth
Calculating your net worth is a very simple process. To start break out a piece of paper or pen or open up a spreadsheet on your computer.
On one side list out all of your assets. These would be things like the value of your home, the amount of money in your bank account, the amounts in your investing and retirement accounts and the KBB value of your vehicles. Tally those up.
On the other side list all of your debts. These are your liabilities. Include everything that you owe like a mortgage, credit card balances, student loans and any other outstanding loans. Tally those up.
Now subtract your liabilities from your assets. The number you have left is your net worth.
(Here’s a list of the average net worth of Americans which is shockingly low!)
From now on you can use this number each month to see whether you’ve made progress in building wealth.
Ways to Increase Your Net Worth
Disappointed by your net worth? If so, don’t worry. There are plenty of things you can do to increase your net worth. If you are interested in personal finances there’s a good chance that you’re already doing these things!
Pay Down Debt – The lower your liabilities the higher your net worth is going to be. If you have high interest debt go ahead and work on getting rid of it. After that you can decide whether or not to focus on paying off other debts early, like student loans or your mortgage, or invest instead.
Save More Money – More cash in the bank equals more assets. If you don’t have any high interest debt, save your money!
Related: How I Saved $10,000 on a Low Income
Invest More Money – Of course, one of the best ways to grow your money is to invest it. There are plenty of ways to invest but it’s recommended to start with a retirement account and after hitting that goal move on to investing in a personal account.
Invest Right – Unfortunately we can’t predict how our investments will do. (It’d be nice if we could though!) Your net worth could increase or decrease from month to month depending on how your investments do.
Earn More Money – Earning more money isn’t going to increase your net worth on its own. However, putting that extra money to good use by paying down debt or saving certainly will.
Unless you hit the lottery or make a brilliantly lucky investment chances are you won’t see any huge spikes in your net worth right off the bat. However, with consistent work and investments you will see a nice upward trend over time.
Tracking Your Progress
Net worth is not the perfect picture of financial health. In fact, it’s possible to have a very high net worth but also be very high risk. With that said, measuring net worth can be a great way to check progress on a monthly basis and to ensure that your numbers are moving in the right direction.
If you’ve never calculated your net worth go ahead and do so and make a plan to update it each and every month.
Do you track your net worth?