What’s your Net Worth?

Net Worth is a very important personal finance term that I’ll describe below. Before I do that, I want to make one thing clear: while it’s perhaps my favorite personal finance metric, it is a dangerous phrase because some may mistake it for a person’s actual worth. Despite economists’ attempts, there is no financial way to value a person’s worth. Each one of us is so much more than the money we have in the bank. We are parents, children, spouses, brothers, sisters, friends, doctors, pilots, teachers. We are funny, smart, kind. We are so many things. We are complex.

Since this blog is about personal finance, let me share my thoughts about Net Worth anyway.

At a high level, net worth is just a number that is a sum of two things: Assets and Liabilities. Assets are those things which you own, and liabilities are those things which you owe. Assets are things like savings, brokerage, retirement, college savings accounts, as well as tangible assets like house and car. Liabilities are things like credit card debt, college loan, car loan, mortgage.

Net worth is a great measure of your overall financial health. If you have more assets than liabilities, you have positive net worth. Congratulations. If your liabilities outweigh your assets, then you have negative net worth and it’s time to address your financial health. If your assets are larger than your liabilities by $1 million, then you are a millionaire. Big congratulations!

I like tracking metrics because I am a big believer that what you measure is what you improve. I started tracking my net worth in my twenties in a spreadsheet. In my 30s, I discovered a free app called Personal Capital and have been using it pretty much daily. Once you connect all your accounts, you can see where you are today in terms of net worth – all in one place. The app also lets you track the ins and outs of your money, which I find quite helpful to see when I earn dividends across different brokerage accounts and when my purchases go through (it’s a good way to occasionally catch fraudulent credit card transactions).

I don’t think everyone needs to check their net worth daily, although transactions could be good to check frequently if you have many. I do recommend establishing the cadence that’s right for you and sticking to it. If you do well, you’ll probably increase the check-in frequency. If you start to fall behind, you’ll gravitate towards not checking. I encourage you to stay close to it in good times and bad.