A net worth statement is the cornerstone of your personal finance world. It provides the real world results associated with trying to spend less than you earn and invest the difference. It allows you to see the real life application of long term investing. It allows you to quantify how much you should be freaking out about outstanding debt. It wasn’t until January 2011 I started tracking and sharing my net worth – 3 years after I started this blog! Like anything in life there are pros and cons associated with tracking your net worth. While, I personally think the positives out weigh the negatives, I could see why some would choose not to track their net worth.
Calculating Your Net Worth – Pros
There are some pretty obviously pros associated with tracking your net worth:
- How do you know where you are going, or whether you are doing this correctly if you don’t know the starting point?
- Does anyone really know how much debt they have without writing it down? This alone may be worthwhile enough for everyone to start tracking their net worth.
- May be able to put together trends from your net worth statement.
- Can provide inspiration/gamification to improve the number. Sure, you could buy that new toy but you know that it will increase your liabilities without providing a corresponding increase in assets.
- It forces you to want to understand what is happening with your investments. You are writing a number down every single month, I have to assume it would pique most people’s interest in what is happening within the account.
Calculating Your Net Worth – Cons
With all that good how could there possibly be cons?
- You may make decisions for the short term bump. Whether that means to forgo minor luxuries or major ones – life is worth actually living.
- You may start to toy with investments to try and eek out minor gains
- Could honestly cause anxiety for some
I obviously believe that the pros outweigh the cons, but there may be those that choose the head in the sand approach because they know it would have a negative impact on their financial life. Regardless of whether you believe tracking your net worth is a good activity or bad activity, you should at least make that choice as opposed to just ignoring the topic!