You may be used to everyone talking about budgeting with your monthly income and expenses.
But there is one piece of the pie that your budget doesn’t cover — your net worth.
Your net worth is just as important to track as your budget, believe it or not.
Budget vs. Net Worth
Your budget tracks your income and expenses. It’s how much money you make and how much money you spend.
Your financial statement (or balance sheet) tracks your net worth, which takes into account 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 can download my Net Worth Statement, too. It’s the perfect template to track your net worth.
A Final Note!
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 spreadsheet I’ve made for you. It’s what I use, too. 🙂
Whatever you do, make sure you track your net worth – it’s super important.