You may know the value of a dollar but what about the value of all the dollars in your accounts and assets? Here’s where we talk about how and why to track your net worth.

This is the third day in our 31-Day Money Challenge. Over 31 days we’ll publish 31 podcasts, each designed to help you move closer to financial freedom. Previously, we looked at how to set financial goals you’ll actually achieve. In this podcast, we discuss the importance of a net worth statement, how to prepare one, and how to use it to track your progress toward financial freedom.

Sponsors: The 31-Day Money Podcast is sponsored by Betterment and Personal Capital.

Betterment and Personal Capital are two tools to make investing easier, less expensive, and more effective.

About Your Net Worth

Do you know exactly where you stand financially? I don’t just mean how much money you have in your checking account or whether you’re up-to-date on your bills, either. I am talking about the status of your overall finances, as measured by your net worth.

Perhaps you’ve never tracked your net worth before, and wouldn’t even know how or where to start. You might not even see the value in doing so. That’s why today, we are going to spend some time talking about how and why you definitely want to track your net worth… and how it can completely transform your progress toward financial freedom.

Your Worth Isn’t Your Income

Here’s one of the most important things you need to remember as you work toward some of your biggest goals: financial freedom is not about how much you make, it’s about how much you keep.

Many of you may have never really thought about finances in that way before, but that truth has the ability to completely transform how you approach personal finance for the rest of your life. After all, it is the same reason that we hear about school janitors retiring with millions, or star athletes going bankrupt.

At the end of the day, your paycheck isn’t the biggest factor: how you manage that money is.

In fact, building lasting wealth can be summarized in just two simple steps:

1. Spend less than you make, and


2. Invest the difference wisely.

This is the formula for wealth regardless of whether you make $50,000 a year or $1,000,000.

Seriously, It’s That Simple

There are many Americans who earn a modest income, yet are able to achieve financial freedom. These folks are the unsung heroes of money management. They don’t often make the front page of the newspaper (except maybe this guy); instead, like my grandmother, they are nurses in small towns in Ohio, living in a home that is paid off and building a comfortable retirement nest egg.

How? By (1) spending less than they made, and (2) wisely investing the difference.



Likewise, there are countless stories of professional athletes, lottery winners, and movie stars who made millions, but wound up dead broke. Why? Because they failed to (1) spend less than they made, and (2) invest the difference wisely. Ed McMahon. MC Hammer. Vince Young (former NFL Quarterback). Sharon Tirabassi ($10 million lottery winner).



So, how do you go about using this lesson to your advantage? And more importantly, where does your net worth come into play?

All About Net Worth

Your net worth is a simple formula: it’s the sum of your assets minus the sum of your debts. This gives you a much more comprehensive picture of where you stand financially, versus simply looking at savings and retirement accounts, or credit card balances (though all of those are still important).

As you’ll notice, the net worth formula isn’t impacted whatsoever by your annual income. Your net worth doesn’t depend on whether you will make seven-figures this year or five; instead, it will simply account for how you use the money that you make.

Assets and Debts

So, what should you include in either side of your net worth calculations? Deciding which numbers to punch in–and which ones “don’t count”–can be a bit tricky.

On the assets side, you’ll want to be sure to account for your:

• Cash


• Checking account balance


• Personal savings


• Retirement savings


• Equity in a home


• Other real estate equity


• Investments

You might also have other, less-common assets that you would want to include, such as a pricey art collection, a stash of gold bullion, or high-dollar jewelry. Just keep in mind that valuing these things for the purpose of tracking your net worth can be a bit tricky.

In the debt column, you should include things like your:

• Credit card balances (yes, even if you plan to pay it off in full)


• Outstanding mortgage balance(s)


• Student loan debt


• Personal loan debt


• Auto loan balance

Essentially, if you owe it, it goes in the debt column. If you own it, it might go in the asset column.

You’ll notice that I didn’t include your car value in the asset section. That’s because vehicles depreciate rapidly and your car isn’t likely to be an asset you could readily (or effectively) pull from if needed. However, if you feel that your car’s equity is important to your net worth, feel free to include it.

Net Worth and Your Monthly Budget

I’m sure you’ve noticed that your finances change each month. Some months, you’ll need to pay insurance premiums while others, you’ll get a tax refund. Some months will see you buying Christmas presents for your whole family while you’ll make some extra cash from your side gig in others.

If you want to know where you stand in the big picture, your budget isn’t all that helpful. Instead, you’ll want to track your net worth.

Yes, a budget is still important, especially if you have a tendency to lose track of spending or even overspend. And if you’re regularly overspending, you will inevitably impact your net worth. However, your net worth trend line says a lot more about your progress than your envelope system ever will.

How Your Goals Impact Net Worth

At the end of the day, you want to have a nice, large net worth number staring back at you. However, it’s important to realize that for many of us–especially the younger crowd–this number might actually be negative for quite some time, thanks to certain financial goals.

This isn’t always a bad thing. For instance, paying for your education will likely result in higher earnings over the course of your lifetime… after all, that’s why it’s called investing in your future. It can sting in the beginning, though, as you focus on tuition payments instead of savings, or even go into debt with student loans.

Related: How to Pay Off $20,000 in Student Loans in One Year

When you take out a mortgage, your net worth will take a nosedive. Over time, though, you will build equity in your home and it will become an asset.

Some financial goals are less beneficial to our net worth than others, however.

Focusing a large percentage of your income on savings is a great thing, if you can afford it. Focusing a large percentage of your income on a too-large home? Not so much. If your goal is to drive around in a brand new car every two years, that’s your prerogative; driving a used vehicle so you can pay off student loan debt early will grow your net worth faster, though.

Take a look at your immediate and long-term goals; do your monthly spending habits help you to reach them? And more importantly, how do your goals impact your net worth each month?

Net Worth Statements

One of the easiest ways to <