{"id":2048,"date":"2008-09-11T05:00:55","date_gmt":"2008-09-11T12:00:55","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=2048"},"modified":"2024-04-16T14:03:21","modified_gmt":"2024-04-16T20:03:21","slug":"net-worth-the-most-important-number-in-personal-finance","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/net-worth-the-most-important-number-in-personal-finance\/","title":{"rendered":"Net worth: The most important number in personal finance?"},"content":{"rendered":"

Do you know your net worth?<\/b><\/p>\n

Your net worth is a snapshot of your financial life at one moment in time, a single number representing your financial health. It’s the total of everything you’ve earned and spent until today. In The Wall Street Journal Complete Personal Finance Guidebook<\/i><\/a>, Jeff Opdyke writes:<\/p>\n

Knowing your net worth is important…if only for one reason: It forces you to interact with your financial life, keeping you in touch with your money and knowledgeable about where you are on the road to where you think you’re going.<\/p><\/blockquote>\n

Computing net worth is an academic exercise for some, with little impact on the way they deal with money. For others, it’s a powerful motivator. In an article here last March, FrugalTrader described how his net worth went from $-40,000 to $285,000 in five years. He aims to increase this to $1 million by 2015. FrugalTrader’s net worth guides his financial decisions.<\/p>\n

<\/span>Calculating Net Worth<\/span><\/h2>\n

Net worth is easy to calculate: It’s simply the difference between your assets (the things you own) and your liabilities (the things you owe).<\/p>\n

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If, for example, you’re just leaving home, you might have $2000 in the bank, but owe your cousin Harry $500. Your net worth would be $1500. On the other hand, if you only had $500 in the bank, but owed your cousin Harry $4000, your net worth would be -$3500.<\/p>\n

In real life, the calculation can be more complex. Most people have a variety of assets and liabilities, some of which aren’t straight-forward. (Exactly how much is your home worth, anyhow? That antique desk you inherited from your great-aunt Mabel?) If you need help listing your assets and liabilities, you can download a net worth worksheet<\/a> [PDF] from The Quiet Millionaire<\/a>.<\/p>\n

Most personal finance software will compute your net worth, too. Quicken, for example, always shows my net worth (or what it believes<\/i> to be my net worth) below my list of accounts. There are also many net worth calculators online<\/a>.<\/p>\n

<\/span>Tracking Net Worth<\/span><\/h2>\n

After you’ve calculated your net worth, what can you do with it? Like FrugalTrader, you can use net worth to guide your future. Begin by tracking it systematically with a spreadsheet, or with a web-based tool like NetworthIQ<\/a>.<\/p>\n

Whichever method you choose to track your net worth, consider the following:<\/p>\n