You may have seen the phrase net worth used in a Forbes article or on television and wondered, “what is net worth?” The accounting definition is simple: assets minus liabilities. For individuals, it means what that person is worth financially – similar to calculations for an entity. In simple terms, net worth is how much an individual has opposed to how much they owe. Knowing your net worth is important, especially for someone trying to grow financially.
How do you track it?
Tracking your net worth is actually pretty easy. You just have to have a written list of all of your assets, which can range from your house to your portfolio. Assets are anything that is of worth or that could be sold or exchanged. You should also keep a list of your liabilities, which are typically things like mortgages, loans, and other debts. Personally, I like to keep a running list of my assets and liabilities in Excel.
Why should you track it.
Tracking your net worth can help you achieve your financial goals. Knowing what your net worth allows you to set a benchmark number that you would like to see yourself get to. Sharing your net worth with others is also helpful since it holds you accountable and allows others to grow with you. This way, you are each responsible for yourselves and for holding each other responsible. I find this to be the most effective way to grow your net worth.
Many millionaires and billionaires track their net worth. They still have friends, family, and mentors that hold them accountable for their net worth goals, though. In the book “Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!“, Robert Kiyosaki talks about tracking your net worth and how it helps motivate you to grow. Kiyosaki himself tracks his net worth and has people keep him responsible for his own net worth goals, too.
Get started by making a list of your assets and liabilities, then track this list weekly, monthly, or annually. Share your net worth with people who will push you to do bigger and better things. If millionaires and billionaires think it’s important to do this, maybe it’s something you should try out. Make sure to check out “Rich Dad Poor Dad” by Robert Kiyosaki, one of my favorite books that has taught me countless things about tracking my finances. The book will teach you to keep a personal financial statement and motivate you to keep yourself honest with it. If you would like to learn more about these statements, check out my article “Personal Financial Statements.”