Regardless of where you stand financially — whether you’re broke or rich — you gotta track your net worth.
Let me explain..
Budget vs. Net Worth
Your budget tracks your income and expenses. It’s how much money you make and how much money you spend.
- Related: Download 21 Days to a Better Budget
Your financial statement tracks your net worth, which is your assets and liabilities.
Assets – Liabilities = Net Worth
Why You Should Track Your Net Worth
So, you may be wondering “why does this even matter?”
I get it. Net worth seems kind of boring or unimportant.
But it’s actually the best indicator of your overall financial health.
You need to track your net worth so you know what your assets are; what your liabilities are; and what your overall net worth is. You need to know this information if you want to be financially well off.
Your financial future depends on you planning for it. You can only do that if you track your net worth.
How to Track Your Net Worth
To track your net worth, make a list of all your assets, all your liabilities, and subtract the liabilities from the assets to give you your total net worth (Net Worth = Assets – Liabilities).
You can get fancy and create different categories, too. Examples of different categories include: cash accounts, investment accounts, personal, business, insurance, and real estate.
You should update your net worth periodically, so I highly recommend tracking your net worth digitally (with excel or a similar program). This way, you can copy and paste your previous template and update the numbers whenever you update your financial statement.
Here’s an example:
I created this chart (i.e. Financial Statement) as an example. You’ll need to create your own with your respective assets and liabilities.
You don’t just need a budget. You also need a financial statement.
- Financial statement → tracks net worth (assets – liabilities)
- Budget → tracks income and expenses
You can create your own financial statement, using the sample I’ve included above. Or, you can do what I do, which is use an online tool that does it for you. I use Personal Capital because it’s easy to use, has lots of graphs and charts, and is free. It keeps my assets and liabilities organized nicely so I always know what my net worth is. It shows me where I stand and allows me to see my net worth change over time. It’s really awesome.
- Up Next: How to Budget