If you’re stashing away a portion of your paycheck, only charging on your credit card what you can afford to pay off each month (or else diligently hacking away at your balance) and contributing regularly to a retirement account, you’re doing a lot right.
But if you’re not also consistently tracking your net worth, you could be missing out on the full picture—and a motivational boost that can help you hit your goals even faster.
Although net worth is represented as a simple equation (assets – liabilities), this exercise isn’t just about math.
“[Your net worth] is a measure of your entire financial situation. You’re able to see how your efforts across all areas of your financial life are working together to move you forward (or not),” explains financial planner Matt Becker, founder of Mom and Dad Money, LLC. “Just about every good decision you can make—from saving to paying off debt to getting insurance—serves to either grow or protect your net worth.”
Becker especially encourages his clients who feel discouraged about being deep in the red—like those facing major student loans—to pay close attention to this key personal stat. Even if it’s negative for years, watching it consistently improve over time serves as proof that you’re moving towards financial health, which can keep you motivated to stay the course.
First, add up the value of your assets. This might include your savings account, investments—including 401(k)s, IRAs and other retirement accounts—the Kelley Blue Book value of your car and the estimated value of your home (which you can get from sites like Zillow or recent sales of similar properties). Next, tally up your liabilities, which include outstanding balances on your credit cards, student loans, auto loans and mortgage.
For tracking, Becker uses a combination of Mint, which aggregates his account balances and spits out his net worth every month, and a spreadsheet, where he charts his month-by-month progress manually.
How often you want to check your number is up to you. While monthly check-ins help ensure you’re on the right track when it comes to controllable variables, if you’re the type who panics when the market (and your investments) dip, you may benefit from spacing them out, says Certified Financial Planner Sophia Bera, founder of Gen Y Planning. And if your net worth is negative now, she adds, don’t get discouraged. “Remember that paying down debt and building up savings will both increase your net worth, so it might not take as long to have a positive net worth as you thought.”