Out with the old, in with the new: Calculate your net worth
In December and January, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.
(Page 2 of 2)
I wouldn’t worry too much about it, particularly if you’re gainfully employed. Instead, I would focus on the month-to-month or quarter-to-quarter change in your net worth. If your net worth is going up on a consistent basis (meaning that negative number is getting smaller and smaller as it heads toward zero), then you know you’re headed in the right direction.Skip to next paragraph
The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.
Subscribe Today to the Monitor
How do I use this information? In my experience, the best use for one’s net worth is to provide a yardstick and a motivator for better personal finance behavior.
First, you can raise your asset level – and thus your overall net worth – by living more frugally and by finding new ways to earn income. If you resist spending, then the money stays in your account. If you earn more money, that money goes into your account. The better you are at either side of the coin, the higher your asset total will be and thus the higher your net worth will be.
Second, you can reduce your debt level – and thus increase your overall net worth – by living within your means and sticking to a debt repayment plan. These methods will reduce your debt load, thus increasing your net worth.
In other words, your net worth is directly related to your financial moves. If you make good moves, your net worth goes up. If you make bad moves, it goes down or stays stagnant.
This is particularly true when you start keeping track of your net worth over time, calculating it (say) on the first of each month and comparing it to earlier net worths. It’s almost like keeping a financial “score” for yourself, one that, if you’re competitive, will make you want to beat your earlier scores through good financial behavior.
I have calculated my net worth each month since 2006. For a while, I calculated it weekly and, for another period, I calculated it every two weeks. All of this data tells me a few things: frugality really does pay huge dividends, getting rid of debts accelerates your net worth growth (because you’re not dumping money into interest), and my financial progress has been a very good thing. I keep the numbers in a spreadsheet – you can use whatever documentation system works best for you.
Get started on your own net worth track record today.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.