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Why Do You Calculate Your Net Worth?

Posted By Jim On 12/17/2012 @ 7:09 am In Personal Finance | 16 Comments

A lot of people calculate their net worth, and it’s a subject I’ve briefly discussed in the past [3], 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 [4])


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[3] briefly discussed in the past: http://www.bargaineering.com/articles/how-to-calculate-your-net-worth.html

[4] mr_t_in_dc: http://www.flickr.com/photos/mr_t_in_dc/2951905336/sizes/s/

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