Many people don’t know what their net worth is, but knowing the answer to that question can make a big difference in achieving your financial goals.
Investopedia says that one’s net worth “can be viewed as a financial report card that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.”
Knowing your net worth can make a big difference in how you spend your money and what financial goals you set for you and/or your family. A person’s net worth is like a snapshot of their current financial situation.
By having a “big picture” view of your finances easily accessible at all times, you can more readily know when you need to make changes to your money management system that will help you reach your financial goals faster.
So, what exactly constitutes one’s “net worth”? Net worth is the bottom dollar of a person’s financial situation.
How to calculate your net worth:
- Make a list of all of your assets. Add in the value of your house if you’re a homeowner, the value of any cars you own, all retirement, savings and investment account balances and any other larger value items such as boats, recreational vehicles, etc.
- Make a list of all your liabilities. Next, you’ll list all liabilities including your home mortgage, any car or other personal loans, revolving and other debt.
- Subtract your liabilities from your assets. The answer you get is your net worth.
Why Do I Need to Know My Net Worth?
You might wonder why it’s so important to know what your net worth is. There are two main reasons why it’s important to understand your net worth.
First, knowing your net worth number gives you a clear picture of your current financial situation. This is important to have so that you can make choices that benefit you financially or turn things around if your net worth number isn’t as high as you’d like it to be.
Second, knowing your net worth helps you to monitor progress of the financial goals you’ve set. Tracking your net worth helps you to see your big picture financial progress on a regular basis and is a motivator for continuing to do what needs to be done to reach the financial goals you’ve set in place.
Track Your Net Worth – Simplified
Gathering up the dollar amounts on every single one of your assets and liabilities each month might seem like a daunting task, but thankfully there’s an easy way to assess and monitor your net worth using a free tool called Personal Capital.
Here are the steps you need to take to begin tracking your net worth:
- Go to Personal Capital and click the “Join for free” button in the upper right-hand corner.
- Fill out the prompts to enter your email and other pertinent personal information.
- Enter your personal bank account and investment account information. Don’t worry: Personal Capital uses bank-level military-grade encryption to ensure your account information is guarded with the utmost of protection at all times. As an added security measure, no one – not even you – is allowed to move money from one account to another from the Personal Capital website. The site is for viewing and tracking balances only.
That’s it! Once you’ve entered all of the account information you want to be viewable and considered for tracking your net worth, you’re finished! Personal Capital takes over from there and monitors your accounts regularly so that you have up-to-date balance information that will ensure you know your net worth at all times. Check out our review of Personal Capital if you want more info before signing up.
Personal Capital also helps you track other areas of your finances:
- Investment gains and losses
- Account balances and transactions
- Categorized spending charts
- Upcoming bills due
- Projected investment fees
- Income reports