Personal Finance 

Why Do You Calculate Your Net Worth?

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Net Worth ChartA lot of people calculate their net worth, and it’s a subject I’ve briefly discussed in the past, but have you ever looked at the process of tracking this information and why it is you do it? At the beginning of every month, I log into all of my accounts and give them a once over. This includes credit card accounts even though they play no role in our net worth (more on this later). I do this because I think you need to check everything once a month and I figure, as I spend the time to do this, I might as well write down the numbers and see how things are going each and every month.

Reviewing accounts drove the process, tracking the numbers was simply part of the process since I was doing most of the “hard work” already – logging in. As the months and years passed, this just became part of a monthly process. One thing that I recently introduced was a bit of note taking, in addition to the recording of numbers, to record significant movements so the numbers were put in context when I reviewed them later. A drop of 10% in an account might mean bad news (such as a weaker stock market) or it just means I transferred money – context is crucial.

I added these notes because I felt like what I was doing was simply writing down numbers. I was calculating my net worth for the sake of calculating it. I recorded it because it was there, not because it was adding value in any way. It’s not like I had a plan or any goals, my net worth is too high level for that, so it was purely mechanical. The only benefit was that I started closing accounts I didn’t need because I didn’t want to log into them (consolidating all my savings accounts, for example). After I did much of that, it was still just a mechanical process. The notes gave it some context and, thus, additional value.

In addition to providing insight into the numbers, the notes also turned my a log of numbers into more of a financial journal. If you calculate your net worth, consider putting notes in because what you really want is a journal of your financial progress, not an accounting ledger. Consider the reason why you calculate your net worth and try to go beyond what the “experts” say you should do. I calculated net worth because I wanted to see progress, all I really saw was a list of numbers. By using notes, I saw changes in our life and how that affected our finances.

I’m still not at a point where I feel like tracking my net worth is really adding value, other than providing that high level insight into “how we’re doing.” Perhaps that’s all it’s supposed to be? It’s like taking your temperature, it gives you a general idea of how you’re doing without really being able to diagnose anything. Maybe I should be OK with that?

Do you calculate your net worth? If so, why do you do it?

(Photo: mr_t_in_dc)

{ 16 comments, please add your thoughts now! }

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16 Responses to “Why Do You Calculate Your Net Worth?”

  1. cubiclegeoff says:

    I’m not sure, mostly to see progress or lack thereof.

  2. Right now my main goal is the insight and to make sure I’m not having any horribly off months that mean I need to reexamine my spending.

  3. C. Dowling says:

    To help keep me focused on financial goals.

  4. I think tracking net worth–the highest level measure of ‘how one’s doing’ financially–can motivate saving and, more importantly, paying off debt. If you have no debt and have saved enough to live comfortably the rest of your life, then I don’t see the point of tracking net worth. But until then, nothing like a little positive reinforcement to keep up the enthusiasm about a saving/debt payoff plan!

  5. Mark says:

    Net worth has always been a critical finance tool for myself. Not the value itself, but how it changes from a month to month basis. In truth, having $5000 in the bank and owing $10,000 is the same as having $1000 in the bank and owing $6,000. But most budgeting techniques seem to ignore this basic fact. But if you are looking at net worth, it is the same.

    And more importantly, if the next month you owe $15,000 but have $1000 in the bank along with $10,000 in liquid assets, you have made a good forward step in your finances (your net worth improved by $1000).

    I’ve been tracking my net worth since about 1990 (mainly in Quicken when I had about a $0 net worth) and I find that my most powerful budgeting tool.

  6. Aloha Jim,

    A very timely article for me! I spend hours inputting figures into our Quickbook accounts and usually only look at the annual figures when we submit our numbers for our tax accountant or are applying for a bank loan.

    It makes sense to look at it on a monthly basis and get a better feel for seasonal ups and downs (we do more real estate investing rather than stocks and funds) as well as pinpoint where and what we can streamline.

    Since the time was spent inputting into Quickbooks already, a quick report on profit and loss is as simple as clicking on the “print” option.

    A really nice tip I got from this article was jotting down monthly figures of our net worth on a monthly basis and notes about what affected changes or turning points, if there were any. It is like having a history and reference points of our own financial life.

    This reminded me of a tip I got at a recent wealth seminar. The speaker suggested taking 2 sets of notes. Normal notes which we all take, and one on the side that had a list of 3 things to do on Monday relating to (or not)the topic being taught.

    It was a great tip, as is yours. Mahalo for sharing!!


  7. Tracking my net worth is at first a measure of my financial progress month over month year over year. It also through deeper analysis can point to things where you can improve your finances. Most importantly it tracks when I can consider myself financially independent, when the numbers align just right and I can survive with a lifestyle I consider acceptable in perpetuity. Net worth matters a lot, it is the barometer and driving force behind almost all of my financial decisions, will the decisions increase or decrease my net worth, and over what time horizon.

  8. Mark says:

    Net worth has always been a critical finance tool for myself. Not the absolute value so much as how it changes from a month to month basis. In truth, having $10,000 in cash and assets (liquid) and owing $5,000 is the same as having $20,000 in assets and cash and owing $15,000. But most budgeting techniques seem to ignore this basic fact. In reality, these are identical financial situations.

    But as I said, what is important is change in this number. If the next month you owe $6,000 but have $12,000 in assets, you have made a good forward step in your finances (your net worth improved by $1000).

    I’ve been tracking my net worth since about 1990 (mainly in Quicken when I had about a $0 net worth) and I find that assessing that net worth my most powerful budgeting tool.


  9. Chris B says:

    I track my net worth via I’ve added everything in there to do with money (although I don’t include my personal assets beyond my home and car). After years of being very poor, it’s nice to be on cruise control and see growth each month. It also is just fun to see my net worth steadily grow $10,000-$20,000 a month without me doing much besides my usual routines and occasionally rejiggering my investments.

  10. javi says:

    I track my net worth to make sure I am saving more than I am spending. If I reach my financial goals then I know that I can work less later in life.

  11. Brad says:

    I’m kind of a nerdy accountant and I’ve been tracking it for years and taking notes along the way. Wanna make it really fun? Forecast what it will be in the future. I’m 50 and I have a pretty good idea what it will be year-by-year until I’m 85. It is very motivating. I used tweakable assumptions for income, investments, expenses, mortgage, taxes, inflation, etc. Take a snapshot on Dec 31st and see how well you did a year later. It took a while to get the process down, but it is worth it and it is very eye-opening. I found out that I can retire at 55 and still grow the net worth every year. Most people I know say they’ll never be able to retire. Run the numbers! You might get a pleasant surprise.

  12. Sadie says:

    Tracking “net worth” on a regular basis also comes in handy when a spouse passes away as provides a more clear picture of where the survivor stands financially.

    Though I did some of this, the picture was not complete; sure wish I had done a better job as it would have been so much easier at a time like this.

  13. Lei Lani says:

    I track all of the figures and accounts that go into my net worth so I have a up-to-date list of accounts, assets and liabilities in case I become incapacitated or die. Sounds gruesome, but I had the joy of being able to take care of my mother in the last year of her life, and was able to talk to her and get an idea of her financial situation (which was horrible!) but, knowing that, I was able to settle her affairs pretty quickly after she died. I want to be sure that I do not rely on my child to take care of me financially as I get older, so I keep track of what I own, what I owe, and where the assets are. (Isn’t that what net worth boils down to?)

  14. aua868s says:

    I use to track my finances including net worth. It has helped me more than once to track late fee/interest charges (even though I am in auto payment and if the payment day was a holiday, i was charged late fee!)…so apart from net worth calculation, it has helped me to save unwanted expenses. well, privacy of is a different discussion, but it has worked out for me well thus far.

  15. Walter says:

    I track net worth for many reasons, but mostly to detect trends in asset and liabilities: are they going up or down month to month? Am I staying within parameters (asset/debt-expense ratio) I have set for myself. Is my net worth increasing, decreasing, or flat, and which accounts or debts are responsible, both positively and negatively. It also forces me to look at my accounts, like you, on a monthly basis so that I can pinpoint accounts that may need further investigation

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