Your net worth is the single most important financial metric you should track. While your earnings, investments, and other metrics are great, your net worth gives a better and more precise picture of your financial health. This is because it represents the total of your entire financial life, presented in numbers you can easily understand.
How to Calculate Your Net Worth
Your Assets (Everything you own) - Your liabilities (everything you owe) = Your Net Worth.
This means you can be earning a very high salary and still have a low or negative net worth. Here are five reasons you should keep your eyes on your net worth at all times.
It helps you understand your financial health.
Tracking your net worth helps you understand where you stand financially and what you can afford without affecting the value of your existing assets. This goes a long way in financial decision-making and affects your overall financial health.
It helps understand which assets are growing.
By keeping track of your net worth, you will tell which assets add value to your financial health and make intelligent decisions.
It helps manage your debts.
Debts and liabilities affect your net worth; keeping track of your net worth helps you set goals to pay off your debts are it helps to grow your net worth.
You can tell if you are investing or simply spending.
Having a high income and investing and growing your wealth are two different things; by keeping track of your net worth, you can tell if your growth in salary is helping increase your net worth.
It helps you plan for financial emergencies.
Life happens; keeping track of your financial health helps you set aside emergency funds and how much you need to set aside per time.