The term net worth is often associated with celebrities and multimillion-dollar business owners, but net worth is something that everyone has and needs to be considering.
Tracking and understanding your net worth is an incredibly important piece of your personal finances and one of the most important tools when it comes to achieving your financial goals.
By now you may be wondering what exactly is a net worth. It is quite simple: your net worth is the difference between your assets and liabilities.
In other words, it is how much you own versus how much you owe. Your net worth is able to give you a high-level overview of where you stand financially. It is important to track your net worth for a number of reasons.
Indicates Your Financial Health
Tracking your net worth helps you to understand your overall financial health. Your net worth is a snapshot of your financial situation at a given time. It gives you an idea of your financial standing, whether you are progressing towards your financial goals, or if you need to change your financial habits.
If you have a negative net worth, you currently owe more than you own. This isn’t necessarily a bad thing; a mortgage can result in a negative net worth but this is generally regarded as good debt.
However, if your net worth is negative as the result of excessive credit card or personal loan debt then this can be an indicator that you are spending more than you should and your financial habits need to change. In comparison, a positive net worth is a good sign that you may be on track with your financial goals.
Helps you make informed financial decisions
Tracking your net worth allows you to take stock of your overall finances and as a result, make informed financial decisions.
By seeing the difference in your net worth when you make good financial decisions like contributing to your pension fund, vs negative decisions like spending frivolously with your credit card, you will be more inclined to change your day-to-day decisions to make a positive impact over time.
This is also important when making larger financial decisions. If you are looking to apply for a mortgage in the future, assessing your net worth will give you a better understanding of what you will be eligible to get and allow you to take steps to improve that before so by paying down bets to increase your net worth.
Whether big or small, tracking your net worth helps you make more informed decisions.
Set and achieve financial goals
Do you want to have a £1,000,000 net worth before retiring? Tracking your net worth early allows you to see if you are on track to hitting your goal and if not adjust in order to do so. Only when you have an understanding of your financial standing can you set realistic goals and create a plan to achieve them.
For example, if your goal is to have a £5000 net worth 1 year from now but are consistently racking up credit card debt and not focusing on growing your assets then you need to change your habits or set a new goal that is more realistic in that time frame.
On the flip side if your net worth is positive you can set a goal to invest in stocks, real estate, or other assets that will enable you to continue to grow your net worth. Without realistic financial goals, you are missing out on opportunities to improve your financial situation and may be setting yourself up for failure in the long run.
How to track your net worth?
Now that we have covered the importance of tracking your net worth, let’s discuss how you can do so. It is rather simple in theory to calculate your own net worth, you simply subtract the total of your liabilities from the total of your assets.
In reality, manually calculating your net worth is time-consuming, as you need to compile all of your assets and liabilities and will need to regularly do so in order to have an up-to-date snapshot of your net worth.
Luckily you do not need to do so manually as personal finance apps like Emma take the guesswork out of the equation and can provide an up-to-date depiction of your net worth. Emma is able to look at all of your bank accounts, credit cards, investments, and outstanding debts to provide an accurate net worth that stays up to date as you spend and save.
Managing personal finances can be overwhelming and requires discipline and organization. Personal finance Apps like Emma ease the stress of tracking your finances for both the day-to-day and long term. Tracking your net worth is essential for managing your personal finances by indicating your financial health, making informed decisions, and managing your financial goals.
Tracking your net worth is an essential part of financial success and stability and apps like Emma make it easy to do so.