It's easy for you to convince yourself that you own a lot more than you actually have these days. However, your net worth is what offers a true picture here. It reflects what you own and how much of it belongs to your creditors.
In addition, net worth also assists you in tracking how you spend money – whether you’re spending on things that improve your wealth in the long run or destroy it.
There are essentially two things that make up your net worth. One, the things that you own – your assets like cash, investments, properties, and car. Two, your liabilities, including your credit card debt, car loans, mortgages, and personal or student loans. Knowing the value of these is essential for ensuring your financial security. That's where the importance of tracking your net worth comes into play! Here are four important reasons why you should track your net worth:
It Helps You Spend Wisely
Once you start tracking your net worth, you’ll start identifying the things you’re spending too much money on. Just because you have enough money to afford something doesn’t mean you should buy it. You need to make a call before purchasing something if it’s a want or a need.
Tracking your net worth does exactly that! It helps you stay focused on your needs instead of your wants. For instance, you might see an expensive pair of shoes, and it's love at first sight. However, when you check your budget, you see you can't afford to buy them. You decide to opt and pick a less expensive pair to keep you moving on the right financial track.
It Encourages You To Pay Down Debt
Tracking your net worth always urges you to reduce your debt. You can review your liabilities and see if there's some room in your current budget to pay off some debt. You will also be more cognizant of taking on any additional debt.
It Helps You Measure Your Progress
Calculating your net worth every now and then is also a great way to measure your progress. For example, if you have a net worth goal to reach before your retirement, tracking your net worth will make it easy for you to know how you’re progressing.
If you’re going slowly, you’ll be able to address the issue and resolve it in time. Remember, you can't improve your net worth if you don't measure it.
It Helps In Your Savings
Your net worth can motivate you to invest and save more money. How? If your financial statements suggest that you’re on the right path to achieve your financial milestones, it can help you continue on the same path.
Conversely, if the net worth shows room for improvement -for instance, working overtime, etc., you might go the extra mile and have amore aggressive approach to investing and saving money.
Start Tracking Your Net Worth Now!
That concludes our discussion on how pivotal tracking your net worth is. You'll spend money wisely, clear your debt, achieve your goals, and ultimately save more money if you track your net worth. So, follow the above-mentioned factors and start tracking today!