I have a confession to make. I don’t really track our net worth. This probably borders on heresy, particularly on a personal finance blog, as tracking your net worth is seen as one of the most important things you can do when it comes to managing your finances. In fact, a number of bloggers that I follow all track their net worth on a regular basis. For me, however, I don’t find much utility in doing so. At least for now. What follows are some of the reasons why I don’t track our net worth, as well as some of the things that I do keep an eye on.
Reasons I Don’t Track Net Worth
The Components are Variable
There are countless of proposed ways to figure out your net worth. Some things should be included in everyone’s calculations, such as savings and checking accounts, investments, credit card debt, student loan debt, and car loans. But what about your home? Some people include the value of their home in their calculations while others don’t. What about other things of value, like your car, jewelry, or comic book collection? Should you include those as well?
Home Equity May Be a Big Chunk of your Net Worth
For most homeowners, home equity might make up a decent proportion of their net worth. As an example, if I were to include our home equity in my calculations, our net worth would increase by about 40%. While that would make me feel great, the reality is that money is locked in somewhat of an illiquid asset. Sure, I could take out a home equity line of credit (HELOC), but that would just be taking on more debt. And yes, I could sell our house, but that process takes some time. And I would be homeless. I would, however, keep track of a second home or rental property.
Our Financial Situation is Not That Complicated
In all honesty, our finances are not that complicated at the moment. We have a home with a mortgage, student loans, bank accounts, and investment accounts. We have no consumer debt or car loans, and we don’t own a second home or a business. I figure if I continue paying off my student loans while saving for retirement, my net worth will go up. At some point, should our financials get more complicated, I may start tracking our net worth regularly. But at the moment, I don’t gain any additional insight by doing so.
Things I Do Keep Track Of
While I don’t track our overall net worth, I do keep tabs on other numbers quite regularly.
Student Loan Balance
Readers of my blog and PTFO series of posts know that I’m on a mission to pay off my student loans aggressively. To do that, I need to know what my outstanding balance is in order to make sure that my plan is on track. Also, I already know that getting rid of this debt is going to have a huge impact on my journey toward financial independence as well as my net worth.
Since I am working toward FIRE, I need to know what my current retirement savings are in relation to my target nest egg amount. I don’t include amounts that we have set aside in our emergency fund and checking account, although these would be a part of a net worth calculation.
I do occasionally peek at our mortgage balance, but I don’t obsess about it. We have no plans to pay this off too aggressively, but I would like to know when we would be completely debt free. I don’t really keep track of the value of our home as this is our primary residence and we don’t plan on moving or selling any time soon.
You Should Figure Out Your Net Worth if You’re Trying to Take Control of Your Finances
I did calculate my net worth when I began my financial journey. And honestly, this should be one of the first steps you take if you’re trying to get a handle on your financial situation and/or get out of debt. You should calculate your net worth, however you define it. Doing this forces you to write down what you HAVE and what you OWE on paper (or spreadsheet). This is especially useful if you have multiple types of debt, such as credit cards, student loans, and/or car loans. Only when you gather all of your financial information can you really devise a plan of attack.
One Size Does Not Fit All
In the end, you should do what’s best for you. After all, personal finance is “personal”. If tracking your net worth motivates you to keep working toward your financial goals, then by all means track away. If you’re sweating all the details or stressing out about what to include in your net worth and what not to, perhaps you can track some of the components of your net worth instead. Either way, it’s all good as long as you’re moving forward and working toward your goals.
Readers, what do you think? Do you keep track of your net worth on a regular basis? Or do you monitor other aspects of your finances?
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