Do you know your net worth, does it matter? What is tracking your net worth, worth?
There are tons of numbers to track when it comes to your finances, and net worth is one of them. But what exactly is net worth and is it a number worth tracking?
What is Net Worth?
Net worth is the number you get when you total up all of your assets, total up all of your debts, and subtract the two numbers.
Assets include cash, investment accounts, any real estate you own including your home, automobiles, household goods (The things that would have resale value like art or China. You don't need to figure out the worth of every towel and doily), and the cash surrender value of any life insurance policies you have.
For most of us, I think we can get a pretty accurate picture of our net worth with just those first four. Unless you have very costly art or jewelry, household goods are going to be mostly negligible, and it's hard to estimate the resale value of stuff like furniture and appliances.
Don't include any inheritance you expect (or hope) to get. It's too uncertain to be included in your calculation.
What numbers do you use for things like your home and car though? If your home is valued at $200,000 and you have a mortgage for $150,000 you put the full value ($200,000) on the asset side and the mortgage owed amount ($150,000) on the liability side.
The same for any automobiles, the full value is an asset, the amount left on the loan a liability.
Liabilities include all debt including credit cards, student, car and personal loans, and your mortgage.
If you have $100,000 in assets and $50,000 in liabilities, your net worth is $50,000. The number can be negative too. If you have $50,000 in assets and $100,000 in liabilities, your net worth is -$50,000.
You don't have to do this math by hand. I know what you're thinking, but it's not Mint. Mint is a wonderful tool for budgeting, but there is a better way to get your net worth.
Personal Capital gives you that 1,000-foot overview of your entire financial picture, not just your budget. You link your asset accounts, and your liability accounts and Personal Capital will show you your net worth right on your dashboard. And it's free!
Is Net Worth the North Star?
Yes, knowing your net worth is important, and that number is important because what gets measured gets managed. If you don't know this number, you don't have an overall picture of how financially healthy you are.
Consider using salary as a marker of financial health and progress. You've steadily increased your income year after year since you started working, so you're doing great right? The number that represents how much money you make keeps going up.
But salary isn't the whole story. Sure you might get steady raises but every time you do, you celebrate by going on a spending spree, and you're in credit card debt as a result. Salary tells you nothing about your debt. Salary would also tell you nothing about investments.
If you only look at your assets while ignoring liabilities, calculating net worth will force you to take your head out of the sand. Great, your house is worth $750,000. But you still owe $700,000 on it; you have $80,000 in student loan debt and $50,000 in credit card debt. Definitely not doing great despite your baller house.
How'm I Doin?
Got your number? Great, now how do you stack up? Well, we can't really go by how most Americans are doing to determine that because most Americans are doing dismally. The median net worth for those under 35 is just