Why you should track your net worth (and how to do it)Oct 07, 2019
Your life is busy enough without having to add another item to your to-do list, but if you’re committed to building a better financial future, calculating your net worth will give you perspective and motivation.
Your net worth is simply calculated by subtracting all your liabilities (what you owe) from your total assets (what you own). I've included a template in the Resource Library you can download here. It’s simple, but the numbers are powerful indicators of your current financial situation. Think of it as the report card of your financial health.
Net worth = Total assets – total liabilities
When you’re creating your long term and short-term financial goals, your net worth calculation can help you:
- See trends in your financial situation
- Be proactive in making better financial decisions
Let’s break it down:
See trends in your financial situation
One thing that’s certain about your life is that change is constant. You will earn more, acquire property, lose a job, get a side hustle. Throughout your life, your net worth number will change depending on your situation. But when it is tracked over time, the net worth calculation will show the changes you make in income and spending habits.
It’s not necessary to calculate your net worth on a monthly basis (unless you really want to!). Once you’ve set up your spreadsheet, it’s simply a quick update every 6 months or annually, depending on how much you want to geek out.
Be proactive in making better financial situations
There’s nothing like seeing the numbers in front of you to bring you back to reality. The perspective gained can be like inhaling a breath of fresh air – you know exactly where you stand.
For some, this could peace of mind. For others, it could be the reality check they need that motivates them to improve or change their current financial situation.
What are your assets?
It’s likely your residential property is your largest and most valuable asset. You can estimate your home value, but it’s easy to be biased and make it worth more than fair market value. A qualified real estate pro can help you out, or you can check out the local listings in your neighborhood to zone in on a reasonable value.
Other assets you should include:
- Additional property
- Collectibles and furnishings
Keep in mind you need to try and base these figures on what you could sell for each asset, not what you paid for them or how much you think it should be worth.
What are your liabilities?
If you do own a home, you’ll need to include the outstanding mortgage on your calculation. For example, if your home is valued at $350K and you owe $300K on your mortgage, your home will effectively add $50K to your net worth.
Other liabilities to include:
- Outstanding vehicle loans
- Consumer debt
- Notes payable
When you’ve got financial goals that you’re working towards, your net worth is a great check in document you can refer to and see the progress you make over time.
To help get you started (and make it super easy to implement) I’ve included an excel net worth tracker in the Money Library that you can download and use here. The formulas and columns are already included for you.
Do you have any questions about your net worth or need some help reaching your financial goals? Book your free consultation here, I’d be glad to help.
Stephanie Wolfe is an Accredited Financial Counselor of Canada (AFCC) and the Founder and CEO of Wolfe Collective Wealth Inc. She is a passionate advocate of financial wellness and empowering women to take control of their wealth. She resides in Toronto with her husband and three children.