The myth
The first time you heard the term “net worth,” it was probably talked about in the news relating to the wealth of people like celebrities and politicians.
Because of this, net worth may seem like something you should only care about if you’ve reached a high level of wealth. You might think this number isn’t relevant for ordinary people whose assets are comparatively on the modest side.
The reality
Tracking your net worth involves subtracting what you owe (liabilities) from what you own (assets). It’s a number that can give anyone – wealthy or not – an idea of where they are in terms of financial health.
Knowing your net worth can also give you direction on how to improve your financial standing or preserve and grow what you already have.
There can also be an emotional angle for not tracking your net worth. If your assets are small and your debts are large, calculating your net worth may feel like setting yourself up for bad news.
A negative or small net worth doesn’t mean you’ve failed. There are reasons to know this number no matter where you are in life.
- To help manage debt
When you know exactly how much you owe, you can set a plan to bring down that number instead of letting debt loom over you like a shadow.
You can explore strategies for paying down debt such as consolidation and the snowball or avalanche methods. Note that not all liabilities are bad since some types of debt may help improve your financial standing when managed properly.
- To find room for improvement
You might get a raise and still feel like your situation hasn’t improved. Your net worth can show whether your money decisions are boosting your overall financial health or if things like lifestyle inflation or impulse spending might be weighing you down.
- To think long-term
When you know where you currently stand, you’ll see how far you still need to go to achieve goals. It can help you maintain a balance when fulfilling short-term and long-term needs and wants.
Regularly checking your net worth also shows your progress and whether you need to adjust your savings or investing approach.
Verdict: False.
Net worth isn’t just a tool for the rich to keep score. It can help anyone navigate their finances and find ways to be better with money and reach goals.
You don’t need to be wealthy to track your net worth. Tracking it might even be 1 of the reasons you’ll eventually build wealth.
