Earlier this week Ben shared a quick way to calculate your net worth and you might be wondering – why bother?
Knowing your net worth, and subsequently tracking its performance every month, quarter, or year, is a lot like knowing how much you weigh. By itself, it’s not particularly useful because you don’t have a relevant frame of reference. You could look up average net worth values provided by the Federal Reserve Board but ultimately you are unique.
Tracking your net worth is valuable because it gives you a quick snapshot of your financial picture in one easy number. When you track your net worth, it’s also important to annotate it to explain any significant changes. I’m sure a few net worths out there have seen some large fluctuations in the last year because of the stock market and it’s important to note that. Like your weight, it’s good to know you packed on a few pounds because of the holidays right?
It also lets you set goals and assess your progress towards achieving those goals. Whether it’s saving up for a vacation or saving up for retirement, tracking it along with your net worth will give you a better idea of how long that will take, whether you’re on track, and can even give you the confidence to work even harder.
Do you track your net worth? Are there any statistics you keep that are especially interesting?
Jim writes about personal finance at Bargaineering.com.