No matter how financially secure or insecure you feel, the number one most important thing to know is your net worth. When most people review their finances they focus on their budget. While creating and monitoring your budget is important, knowing your net worth is more important. Way more important. And it doesn’t need to be complicated. Keep it simple, that’s exactly how I like things.
So, what is net worth and why is it so important?
What is net worth?
Why is net worth so important?
This is how I think of it…
- Budget = Details, day-to-day, short term planning
- Net Worth = Big picture, long term planning
Calculating your net worth on a yearly basis will give you a clear view of your financial health. It provides you with a big picture of all your collective assets and liabilities which helps you to make better financial decisions.
Thinking of buying a new house? A new car? Going on a big, expensive vacation? I urge you to calculate your net worth prior to making any decisions, especially expensive ones. Looking at your overall net worth will make those decisions easier after you see the big picture.
When I look at my net worth, I also like to review interest rates that I’m either paying out (credit cards, mortgage, etc.) or that I’m collecting (savings accounts, retirement accounts, etc.). Looking at interest rates also helps to make better financial choices.
My husband and I recently updated our personal net worth spreadsheet. We realized that in one of our credit cards we were paying more money in interest than we were making in interest on our savings account. Seeing this clear as day in our spreadsheet was an Ah-ha moment. Ding, ding, ding, time to make a change! It doesn’t make sense for us to pay more in interest than we’re making in interest. We were essentially losing money. It was tough to take that money out of savings and see that account decrease but it was the right move for us. We were able to confidently make the decision to pay off the credit card from the money in savings. Now we pay 0% interest on our credit card because it’s paid off and we have a plan to continue saving in our 0.75% interest savings account.
Calculating Your Net Worth
Don’t know where to start? Let me help. I put together a sample Net Worth spreadsheet that you can personalize to your specific situation. The sample situations I added to this spreadsheet are examples only. You will need to add and delete items to fit your situation.
I promise it’s not complicated. After I calculated my own net worth, I felt relief to have a clear picture of my overall financial health. And I like to make it fun by trying to figure out how to increase that number. It’s sort of like a competition…with myself.
Give it a try. If I can do it, you can too!