Your net worth is possibly one of the most important financial metrics you can track for yourself, as it provides a quick snapshot of financial health and enables the establishment of financial goals. It takes precedence over your salary and budget as it is essentially the sum of everything in your life financially. Your net worth is the difference between all of the assets you have accumulated in life and any debts you may owe.
Here, Jason Kulpa, net worthexpert and experienced serial entrepreneur, will go over ways to track your net worth and the importance of doing so.
Why Net Worth is Important
To summarize how net worth can work, each month your salary or wages brings in income, and then your expenses will reduce your cash amount. If you bring in more money in a month than you spend, the surplus increases your net worth. That surplus may either go towards increasing cash amounts in checking/saving/investment accounts, or it can go towards paying down any credit cards, mortgages, auto loans, or student debt. In either case, the net worth increases as a result. If you are spending more than money coming in on a monthly basis, your net worth will decrease over time and can eventually become a negative figure.
How to Track Your Net Worth
To track your net worth, you will need to prepare your own personal financial statement. Before you begin, take note of what items you think should be included in the statement. Every individual’s situation is different and what is important to track for one may not be important for another. A personal financial statement will include assets, liabilities (or debts), income, and expenses.
When determining assets to include, you may not need to jot down every single asset you own but highlight the most important. These may include checking and savings accounts, investments, retirement accounts, real estate, or businesses. Occasionally, people may include their vehicle as an asset, but for the sole purpose of being able to offset the value of the vehicle against the outstanding car loan. Generally, most assets are relatively easy to calculate the value, as financial accounts have dollar values directly tied to them. Items like real estate can fluctuate easily, but sites like Zillow or Redfin can provide you with a good estimate to use. If you own a business or intellectual property, those may require having an actual valuation completed.
Comparing your total assets in one column to your outstanding debts or liabilities in another will give you your net worth total. Subtracting your monthly expenses from income will also provide you with your monthly cash flow, which is another important figure. Monthly cash flow can determine if cash in your asset category (in checking or savings accounts) remains steady on a monthly basis, decreases, or increases.
There are many free or low-cost tools available to help you track your net worth. A simple excel spreadsheet may do the trick, or companies such as Personal Capital or Mint offer automated tools to track it for you.
Once you have begun tracking your net worth, check-in, and see your results from time to time. Establish goals for yourself, such as saving to purchase a new home, paying off debt, or increasing your retirement funds.
About Jason Kulpa Jason Kulpa is a net worth expert and the Founder and former CEO of UE.co, San Diego’s Fastest Growing Business multi-year award winner, and a Certified Great Place to Work multi-year winner. Under Mr. Kulpa’s leadership, in 2018, his teams volunteered at over 24 events and worked side-by-side to improve the San Diego community. They hosted a gala dinner benefiting individuals with autism, cheered on Special Olympic athletes as they broke their records on the track, and brought school supplies and cold-weather gear to students impacted by homelessness.