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Taking Control: Financial Wellness

Last updated on April 19, 2024

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Why Tracking Your Net Worth is Essential for Financial Wellness

As a financial advisor, I often see individuals surprised by the concept of net worth.  It’s not just about the size of your bank account; it’s a comprehensive picture of your financial health.  But understanding this metric and actively tracking it over time is crucial for making informed financial decisions and achieving your long-term goals.  

What is Net Worth?

Simply put, your net worth is the difference between your assets and liabilities. Assets are anything you own that holds value, like cash, investments, property, or even a car. Liabilities, on the other hand, represent what you owe, including mortgages, student loans, and credit card debt.

Why Track Your Net Worth?

Here’s why diligently tracking your net worth is vital for taking control of your financial future:

  • Provides a Financial Snapshot: Calculating your net worth offers a clear picture of your current financial standing. It reveals the combined value of everything you’ve accumulated and the debts you owe. This initial assessment can be a wake-up call, highlighting areas needing improvement or confirming you’re on the right track.

  • Measures Progress Over Time:  The true power of tracking your net worth lies in monitoring its changes over time.  Regularly recalculating (ideally quarterly or annually) allows you to see if your wealth is growing, stagnating, or even declining. This trend analysis helps you gauge the effectiveness of your financial strategies and identify areas for improvement.

  • Sets SMART Financial Goals:  Having a clear understanding of your net worth empowers you to set Specific, Measurable, Attainable, Relevant, and Time-bound (SMART) financial goals.  Whether it’s saving for a down payment on a house, planning for retirement, or simply building an emergency fund, knowing your current financial standing allows you to set realistic targets and track your progress towards achieving them.

  • Identifies Areas for Improvement:  Tracking your net worth can expose areas where you might be overspending or accumulating unnecessary debt.  By analyzing your spending habits and debt levels, you can make informed decisions to cut back on unnecessary expenditures or prioritize high-interest debt payments.

  • Boosts Financial Confidence: Witnessing your net worth steadily increase over time fosters a sense of financial accomplishment and motivates you to stay disciplined with your finances. This newfound confidence can empower you to make better financial choices and pursue your long-term goals with a sense of control.

Getting Started with Tracking Your Net Worth:

Tracking your net worth is a straightforward process:

  • List Your Assets:  This includes your checking and savings account balances, investment portfolios, retirement accounts, the value of your car and property, and any other valuable possessions.

  • Tally Your Liabilities:  List all your outstanding debts, including mortgages, student loans, credit card balances, and personal loans.

  • Calculate the Difference:  Subtract your total liabilities from your total assets. The resulting number is your net worth.

Taking Control

Tracking your net worth is not about obsessing over every minor fluctuation. It’s about gaining a clear understanding of your financial situation and making informed decisions to achieve your long-term financial goals. By consistently monitoring your net worth, you’ll be well on your way to achieving financial security and realizing your dreams. 

Disclaimer: Rockwall Wealth Advisors reminds you that this post is for informational purposes only and should not be considered financial advice. Please consult a qualified financial advisor before making any investment decisions.

Gerald Hendrik – President, Rockwall Wealth Advisors

Rockwall Wealth Advisors is an innovative, independent wealth management firm providing fee-only financial planning advice and investment management.

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