Chances are you know your monthly or yearly income. But how many people know their net worth? Net Worth is simply the value of all your assets minus your liabilities. It’s a number representing how much you’re worth financially.
Net worth is one of the most important, yet often overlooked metrics for determining your financial health.
It’s important to consider tracking your net worth on a regular basis because it gives you the insight to make smarter money decisions going forward.
This article lists the ten reasons why it is important to know your net worth.
1)Lets you know where you stand
Knowing your net worth helps you create a financial plan that will help you reach your goals. You can’t manage what you don’t measure. When you know your net worth, you know where you stand financially. You can then make decisions based on the reality of your situation, rather than assumptions.
2) Gives a clear picture of your finances
You’ll know how much you have to spend and save each month, and how much you’ll need to live comfortably when you retire.
3)Planning
It helps you set goals. Your net worth gives you a starting point from which to set goals. For example, if your current net worth is $100,000 and you want to retire as a millionaire, that means you’ll need to boost your net worth by another $900,000. Goals are great motivators, and knowing your net worth helps you set them.
4) Makes it easy in decision making
You’ll know how much you can borrow if you plan to buy a house, get a loan, or a car.
5) Reality Check
It’s a reality check. If your net worth isn’t where it should be at your age, then it’s time to take action and make some changes to get it under control and moving in the right direction.
If your debt is high relative to your income or assets, then you need to address that or risk getting into serious financial trouble down the road. If your retirement accounts are low relative to what they should be at this point in life, then it’s time to get serious about saving more aggressively so that you’ll have enough money when the time comes to retire and live comfortably without work.
6) Makes it easy for you to make crucial career decisions
If you’re thinking about leaving your job or selling your business, knowing your net worth will help you figure out if the time is right.
Setting objectives is a crucial part of any successful business plan. Being aware of your net worth allows you to set more realistic goals.
For instance, if your current net worth is $100,000 and you would like to retire as a millionaire, this means that you will most likely need to increase your net worth by another $900,000.
With a clear objective in mind, you can make smarter decisions for yourself and achieve your goals faster.
7) Wealth Building
Understanding your personal net worth can be an important step in building wealth over time.
8) Lets you know where you stand
It lets you see how close you are to achieving life goals like buying a home, saving for retirement, and paying for your children’s college education.
9)Lets you know where your money goes
This is important, especially for people who are struggling to make ends meet. Keeping track of your net worth will help you see where money is being wasted or saved.
10) How money is distributed
Net worth lets you see how much income and wealth fall into different categories such as assets and debts, as well as how much money comes in and how much goes out every year.
Also, knowing your net worth can help you determine if it’s time to seek out a financial planner or financial advisor.
Conclusion
Knowing your net worth is important for many different reasons. It provides a snapshot of your wealth and a framework for developing life goals, short-term and long-term.
Setting benchmarks based on your net worth gives you concrete targets to hit when making decisions about purchases and investments. A good place to start is by estimating your net worth at smaller milestones: once every month, once a quarter, every six months, etc.
That way it will be more of a focus in your everyday routine. Regularly calculating your net worth can help ensure that you have a handle on what your finances are doing and that you can adjust as needed.
Also, knowledge of your net worth will help you have a realistic view of your overall financial situation and will enable you to quickly see where you are financially and what changes need to be made.