If yesterday I explained how to calculate your net worth today we will see why it is important to know your net worth and why it is an important tool in the management of personal finances.
But why knowing your net worth is so important? What value does it have? Some reasons could be intuited in yesterday’s article but now I indicate 5 specific reasons why you should calculate your net worth.
Reasons why it is important to calculate the net worth
It gives you a general indicator of your financial health
This number indicates the quality of your current financial situation, for better or worse. And it tells you if you are doing things right or wrong regarding the management of your money.
It puts you in touch with all your accounts
It is a great way for you to review your accounts and deposits in addition to your investments with some periodicity and thus know your situation and concrete evolution.
It allows you to track your progress
If you calculate the net worth each month it helps you to see if you are managing your finances well and warns you that things are going badly before it is inevitable. Perhaps, this is the most important reason.
It serves as a motivator
For me, it is a great motivator to get a larger net worth each month than the previous month. This means being careful with cats, striving to pay off debts and saving on purchases as much as possible .
It is easy to calculate
Once you have gathered the basic information, it can be calculated in just a few minutes. Add your assets, add your debts and subtract the debts of the assets. Voila! You have already calculated your net worth. Not at all as cumbersome as making a budget .
Watch out. Not all that glitters is gold
Now that I have convinced you that calculating your net worth is the most important thing there is, it is worth noting that the value of your net worth has some drawbacks.
It is very difficult to serve to compare the financial situation of another person . There are so many variables in human life that the comparison of your heritage with that of another person, to see what things improve, has very little value.
The absolute value is not really significant , what really matters is the evolution of your net worth. This I repeated several times in the previous article but I insist because it is a very important point.
Take your time today, if you didn’t do it yesterday, to calculate your net worth and do it every month.
It is a very interesting and simple way to see how you progress towards your financial independence.