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When I start coaching clients, most have no idea of their net worth. Also, there is no concept on the importance to track net worth.The reason why is because they don’t want to face their net worth situation. They are too afraid to look at the reality.
What is net worth anyway?
Net worth is the difference of assets minus liabilities.
Assets – Liabilities = Net Worth
For example… Between checking, savings, retirement accounts, and cars, your assets are $50,000. The current liabilities are student loans and auto loan for a total of $65,000. Right now, net worth is a negative $15,000. That means you owe more than you own. As of right now, you are unable to pay off all of your debts, if needed.
Another example… Between checking, savings, retirement accounts, cars, and house, your assets are $425,000. The current liabilities are home mortgage, credit card debt and auto loan for a total of $320,000. Right now, net worth is a positive $105,000. That means you own more than you owe. Technically, you could pay off all of your liabilities or debts if you choose.
Need to figure out net worth? Grab your guide here?
So, why is even important to track net worth year over year. Make sure to grab your Net Worth Calculator.
Why Track Net Worth?
By tracking net worth, it shows the reality of your money situation. It doesn’t get more honest than that. Not sure how to track your net worth. Use this guide. The numbers are clear. There is no gray area. The current assets. The current liabilities. By knowing the reality of your net worth, it is possible to make changes that align with your vision. Unsure of your vision? Check out the Cents + Vision Planner.
One of the main reason for tracking net worth is for progress. It shows you were you have been and where you are heading. The days and hours move fast. However, it seems like mountains need to be moved for changes in your money situation. By tracking net worth, year over year, it shows the progress you are making. Even if using another software, like this one, be sure to keep your own record, too. You never know how long a company will be around.
Just note… tracking net worth on a quarterly or yearly basis is sufficient.
Next, by tracking net worth, it provides a huge motivator in your financial freedom journey. Many times, it is hard to say no and stop spending money. Saving for a future event is just not as much fun. However, by seeing your progress in net worth, it is easier to stay on track especially if you are wanting financial freedom.
Related Post: Money Bliss Steps for Financial Freedom
Regardless of your net worth number (negative or barely positive), you can evaluate your money situation. What is working? What is not working? How can we change our Cents Plan (budget) in order to increase our net worth? Many times, it is hard to evaluate your net worth. Especially when the net worth is in the negative area. However, change cannot happen unless you face reality. Learn the #1 Critical Reason Budgets Fail and the simple fix.
5. Necessary to Reach Financial Freedom
In order to reach financial freedom, it means reaching a magical number. It is impossible to reach financial freedom unless you know your net worth. If you are on the FIRE path, it is even more crucial. Find that sweet spot – Where Cents Parallel Vision. The journey to financial freedom are made of 10 Money Bliss Steps – learn more about the steps. Build a foundation necessary to reach financial freedom.
Knowing your net worth is essential. Honestly, besides having a balance in a checking account, it is the next important number to know. Take the time to find out your net worth number.
It will be a huge motivator in your journey to financial freedom.
Plus an even bigger motivation when paying off debt.