Why calculate Net Worth?

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squished18
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Why calculate Net Worth?

Postby squished18 » Thu Apr 05, 2007 8:23 am

JD posted a thread asking how to best calculate net worth. Here's a more basic question: Why do you want to know your net worth anyways?

In my mind, information or data only helps you if you're going to use it to make a decision. What decision would knowing your net worth affect? One a philosophical level, it seems a bit pointless to focus one's goals around maximizing net worth. It's sort of like getting a high score on a video game. Yes, you can have bragging rights that you scored higher than somebody else, but is it really that important that you have the best Pac Man score?

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tinyhands
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Postby tinyhands » Thu Apr 05, 2007 8:45 am

I don't see it as bragging rights, although it's easy to come to that conclusion.

I think it can be a number that only means something to you, as a means to measure yourself against yourself. Similarly, some fitness trainers warn against stepping on scale. I'm on the scale every day, not so much for the number (which is inaccurate on my cheap bathroom scale anyway) but for the relative progress (or lack thereof).

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Postby squished18 » Thu Apr 05, 2007 8:51 am

That does bring up an interesting point. If you're managing your weight, maybe there is an ideal number you're aiming for. Perhaps it could be like that with Net Worth as well. Maybe the goal isn't to get it as high as possible, maybe there's a target around which one ideally would like to be. Too low and it's time to tighten the strings; too high and maybe it's time to look at better ways to use your funds.

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Postby tinyhands » Thu Apr 05, 2007 9:24 am

Devil's Advocate: I think the recent reader question at the blog was a good reason NOT to publicly announce net worths. Comparing yourself to others is a dangerous drug to mess with.

But your threshhold idea has merit. Set your threshholds as percentages of your current NW and you've got both your goal and your wake-up call. SMART goals are Specific, Measurable, Achievable, Realistic, and Timely.

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Postby pfblueprint » Thu Apr 05, 2007 10:24 am

i track my net worth but stopped posting it because it really shouldn't be of value to anyone except me, you want to know how you're doing but you don't need to be broadcasting it because people will only get pissed off by it imo.

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Postby jdroth » Thu Apr 05, 2007 10:35 am

Good point, Jim.

I think that net worth is a useful indicator when tracking your own progress. But does a $500,000 net worth mean the same thing in rural Oregon as it does in, say, San Francisco? I don't know. I doubt it, but I could be wrong.

Ultimately, it's most important to be happy, right?

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Postby nickel » Thu Apr 05, 2007 11:49 am

jdroth wrote:But does a $500,000 net worth mean the same thing in rural Oregon as it does in, say, San Francisco? I don't know. I doubt it, but I could be wrong.


No, just as a $500k net worth in rural Oregon isn't necessarily the same thing to two different people. It's all relative, which is why I keep track for internal purposes.

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Postby kgazette » Thu Apr 05, 2007 12:21 pm

I track mine because I'm obsessed with data!

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Postby MyOwnMillions » Fri Apr 06, 2007 9:26 am

I think 500k net worth is the same wherever you live. Yes I understand the argument that you can get more in rural Oregon than San Francisco, but the fact of the matter is that people can move! It's their choice where they are, but 1 dollar = 1 dollar whether you are in Africa or US.

I agree with the own progress part, and comparing is definitely a "no-no". I publish my net worth on my page and it is because I want to share with my readers the ups and downs of my net worth (not to mention that I love seeing the net worth number go up). The obvious down side is that I can't really tell people I know personally about my page now since I feel uncomfortable letting them know how much money (or lack of money) I have.

<a href="http://blog.davidmillions.com">My Own Millions Blog</a>
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Postby samerwriter » Sat Apr 07, 2007 1:32 pm

I'm with kgazette. Data wants to be tracked.

It takes all of 10 minutes per month to track my net worth, and as a reward I get pretty graphs going back 6 years.

For a while I used to track my net worth publicly, but lately I've switched to tracking only month-over-month and year-over-year data.

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Why I track mine

Postby consultantjournal » Tue Apr 10, 2007 2:31 pm

I started tracking mine after being featured in one of those "financial makeovers" in a newspaper. At first, I just did it to satisfy the reporter. Now I do it as a means of measuring our progress toward our financial goals. (It isn't possible to use the net worth to track life goals, although saving up for retirement, college, trips and the like does help with those.)
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Postby brad » Wed Apr 11, 2007 4:26 am

I only tracked mine when it was negative ;-) Charting its progress toward zero and above was a good motivator to help keep me focused on getting out of debt. Now that it's in the positive range, I don't pay any attention to it anymore.

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Postby tinyhands » Wed Apr 11, 2007 1:08 pm

It occurred to me last night (as I was tanking up the family truckster) that tracking net worth is like tracking the gas mileage in your car. (Am I the only one?) Although I'm not compulsive about getting the mileage to 6 significant digits, it is an easy indicator of the health of my car. If mileage drops off and I don't have a good idea of why, I know to pop the hood and take a look.

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Postby UprightPolity » Sun Apr 15, 2007 11:12 am

I track mine month-to-month. I do it because I'm not always fully aware of my spending every day. If my net worth at the end of the month isn't in line with my expectations, then I know that I need to go back and look at where my money went that month.

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Postby nickel » Sun Apr 15, 2007 12:02 pm

tinyhands wrote:It occurred to me last night (as I was tanking up the family truckster) that tracking net worth is like tracking the gas mileage in your car. (Am I the only one?) Although I'm not compulsive about getting the mileage to 6 significant digits, it is an easy indicator of the health of my car. If mileage drops off and I don't have a good idea of why, I know to pop the hood and take a look.


I do the same, but have a question for you... Have you ever actually discovered trouble by tracking your mileage? I haven't.


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