I’m a Financial Planning Expert: Here’s Why Everyone Should Calculate Their Net Worth

Mother at home reviews finances on the laptop with baby in her lap.
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What is your net worth? In simple terms, your net worth represents your overall financial value — not just how much money you have, but how much you are worth. It provides an at-a-glance summary of where you currently stand financially. Your net worth will go up and down over time based on your assets, debts and financial habits.

Knowing your net worth is a critical first step to improving your financial situation. This can be a real game changer. GOBankingRates spoke with financial planning experts about why taking the time to calculate your net worth is so important. Here is their invaluable advice.

See Your Whole Financial Picture

Understanding the full scope of your financial situation is key to making informed money decisions. Having all your asset and liability information in one place provides invaluable perspective.

“Calculating your net worth allows you to see a snapshot of your current financial situation all in one place, including your assets (what you own) and liabilities (what you owe),” said Ashley Rittershaus, founder of Curious Crow Financial Planning. “Having all the information in one place allows you to better develop a plan to improve your financial situation.”

Knowing the full picture of your finances is critical. This way, you can clearly see where you stand and where you may need to make changes. With this bird’s eye view, you can create a financial plan tailored to your unique situation.

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Keep You on Track to Your Goals

Monitoring your net worth at regular intervals is a valuable tool to keep you focused towards your financial targets. 

“You’ll get the most benefit if you track your net worth over time, to make sure you’re headed in the right direction to achieve your goals,” said Rittershaus. “A note of caution is that it is normal to see your net worth go down sometimes due to market fluctuations that may impact your investments. Because of that, you might want to only calculate your net worth once a year or quarterly.”

This can work as a barometer to check the effectiveness of your financial habits. If your net worth is trending downward when you want it to go up, that signals it may be time to reassess your spending and saving strategies. Tracking net worth keeps you accountable.

Uncover Opportunities for Improvement

Taking a comprehensive look at all your finances may reveal areas primed for optimization.

“You may uncover some opportunities to simplify your finances, which could include consolidating bank accounts, reducing the number of credit cards you use or completing a rollover of an old employer retirement account,” said Rittershaus.

Going through the process of gathering all of your financial information in detail can highlight areas where you may be able to optimize. For example, consolidating multiple bank accounts into one might help you avoid monthly fees. The awareness this process provides is invaluable.

How To Calculate Your Net Worth

“The easiest way to calculate your net worth is to think of it as a math equation: all of your assets minus all of your liabilities (debt) = your net worth,” said Rittershaus.

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You can calculate your net worth in a spreadsheet, with software or even with just a piece of paper and a calculator. First, gather all of your financial information to make a comprehensive list of assets and liabilities.

Assets are what you own. This includes cash, bank accounts, investment accounts, the value of your real estate and the value of your car. Liabilities are what you owe, including your debts like car loans, student loans, mortgages, home equity loan or line of credit, and any credit card debt.

“Once you have all the values, to calculate your net worth, it is just your total assets minus your total liabilities,” said Rittershaus.

The remainder is your net worth.

How To Improve Your Net Worth

“Once you know your net worth, there are two major ways to change it over time,” said Julie Meissner, founder and CEO of Treehouse Wealth Advisors. “The first is increasing your assets. This can be done via saving, earning, investing or growing your current assets.”

Meissner added, “The second major way is to decrease your liabilities, meaning to decrease the amount of outstanding debt you have. While you may not feel like you are saving by putting that $10,000 in your investment account, if you are using it to pay off outstanding debt, you are still increasing your net worth by $10,000.”

Pay off your highest interest debt first. This debt is costing you the most money in interest charges. Focusing on eliminating it quickly so that you can start investing or putting money towards other goals.

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“The simple advice for increasing your net worth is to spend less than you earn and invest the difference,” said Rittershaus.

She added, “Automate your contributions to tax-advantaged retirement accounts, like 401(k)s and IRAs, and increase your contribution whenever you get a raise. If your employer offers a match on contributions, make sure you are contributing at least enough to get the full match as soon as possible.”

Earning more income can help, but only if paired with increased saving and investing. The combination of reduced spending, automated saving and wise investing of any extra income will allow your net worth to steadily grow over time.

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