The following post is from Melissa Batai
If you’re stuck in a debt cycle, you may not consider tracking your net worth every month. After all, what is the point? The only people who track their net worth are people who already have a lot of money and are debt free, right?
Not exactly. Even if you have debt or aren’t where you want to be financially, tracking your net worth monthly can help improve your financial life in surprising ways.
It can be encouraging. Sometimes your financial life isn’t as bleak as you think. For instance, my husband and I owe on our mortgage, student loans, and a loan for our central air conditioning that we had to replace this summer. When I calculated our net worth, my husband was shocked that it was positive. Even though we have debt, we have a good size retirement account and equity in our house, so we had a positive net worth.
Seeing that your situation isn’t as bad as you think can be encouraging and make you feel better about your financial situation. In addition, a positive net worth can motivate you to continue making positive financial choices.
It can make you spend less. Seeing your net worth, whether it’s positive or negative can encourage you to spend less. If you have better control of your money and spend less, your net worth will likely go up each month. You may find yourself making smart decision just so you can watch your net worth improve every month. Rather than making a split second decision on whether to spend money on a new outfit you likely don’t need, having a larger goal, like improving your net worth, can motivate you to just say no to extraneous purchases that you know you really don’t need.
It can make you pay down debt faster. The more debt you eliminate, the faster your net worth will rise. As you see your net worth increase every month as the debt goes down, you may be more motivated to find and make extra money to pay down the debt even faster.
It can encourage goal setting. Many Americans don’t even have a monthly budget or spending plan. If you already have a monthly budget, taking the time to start calculating your net worth can help you set long-term financial goals for yourself. Say you want to increase your net worth by $500,000 in the next five years. Knowing your net worth gives you a baseline, or starting point, and also a way to monitor your progress throughout the five years. Your net worth can easily show you your financial strengths and weaknesses, which can help pinpoint areas you need to improve and capitalize on to increase your overall net worth.
The bottom line, from Rob Berger, who has tracked his net worth since 2003 is simple: “Net worth is the financial scoreboard. It shows your day to day and month to month progress on a grand scale” (Forbes).
Do you track your net worth? If you do, how has doing so improved your finances? If you don’t, what has stopped you?