According to survey by the Consumer Federation of America (CFA) and the Financial Planning Association, less than 49% of Americans actually know their net worth. That’s just sad. I actually just started tracking mine three months ago, and it has made a huge difference in my personal finance focus. Tracking your net worth lets you see where you are financially and how healthy your situation is. Are you meeting your financial goals? Are you headed in the right direction or sliding backwards? Are you saving enough for retirement, college, etc.?
The classic accounting equation is:
Assets – Liabilities = Equity (Net Worth)
The same equation is used for individual finances. Add up all of your assets like your home’s value, the Kelly Blue Book value of your cars, all your cash, investments, savings, etc. Then, subtract all of your debts such as the balance of your mortgage, your car notes, your credit card balances, and any other outstanding loans or debts. Do not forget to include any medical bills or loans from your 401-k plans too. Now, all of your assets minus your debts equal your net worth.
If you have more liabilities than assets, you have a negative net worth. This is not good of course. You cannot only look at your assets and assume that you are financially healthy.
You can track your monthly changes in an Excel spreadsheet, or you can use a website such as NetWorthIQ.com. NetWorthIQ.com is a place where people can track, share, and compare their financial status with one another. It has discussions, tips, and techniques to help you track your net worth.
You do not have to make your net worth or lack of net worth public on the website. You can have a private account that lets only you view and track your progress. It’s a good a barometer to better manage your money.
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