Your net worth is your assets minus your liabilities. Assets are what you own, such as your investments and your house. Your liabilities are what you owe, such as loans, credit card debt, and mortgage. If your net worth figure is negative, it just means that you owe more than you own. My net worth was negative when I first graduated from college because of my student loans. Once I started to pay my student loans off and investing in the company pension, I could see my net worth increasing. Even when I purchased my house, my net worth was still positive because I didn’t take the maximum amount of mortgage that I was allowed. I bought a house that I wouldn’t be house poor – it allowed me to own my house, but still have a life.
I track my net worth on a monthly basis and have it set up in an Excel spreadsheet. By doing this, I can see whether I am spending wisely. It helps me identify areas where I spend too much. During this process, I have learned to know the difference between a need and a want.
I look at my liabilities to see if they have increased from the last month. This makes me rethink my spending for the next month. Determining if there is additional money to put toward debt repayment the following month helps me refocus my spending.
My personal net worth statement also motivates me to save and invest. I can see whether I am on track to meet my own personal financial goals. The ultimate goal is retirement in 15 years.
Just knowing your own personal net worth will make you more mindful of your spending, and allow you to make more sound financial decisions.