Do you know why we’re obsessed with celebrities’ net worth?
Do you ever wonder how you can track your financial progress?
Do you want to measure your wealth?
The simplest way to do this is by tracking your net worth.
While a lot of people will talk about how tracking your net worth is a complex process, I will tell you that it’s simpler.
If you can grasp the steps well, I assure you you do not need a team of professionals to help you track your net worth. You can do it on your own.
Net worth is not just for rich people.
This is a common myth that net worth estimates if for the RICH ONLY.
It doesn’t matter if you work 8 to 5 job or you have lots of investments that you cannot keep track of.
Everyone has a net worth.
If you want to build wealth, meet your financial goals and into your relationship with money, then you must keep track of your net worth.
In this article, I will take you through everything you need to know about what net worth is and how to calculate it.
I will also go over the steps that will guide you to track your net worth effectively.
Feel free to raise these steps and keep yourself at par with your financial progress.
I am a curious mind with a zeal to increase my wealth and leave generational wealth to my kids.
Kindly, read these financial articles and then consult and keep learning about each topic that interests you.
I also write these financial articles to simplify the complicated financial words.
Every complicated financial article discourages me from learning about investments.
I know a lot of Kenyans are discouraged to learn about investments because the language isn’t understandable.
We want to build generational wealth, how can we when we don’t understand the terms of why we MUST invest in ourselves and the future?
I try as much as possible to simplify these articles.
You can keep chatting below or if you’re an investment banker, chime in with your wisdom.
Otherwise, happy reading and learning.
What is Net Worth?
Net worth simply means the value of what you own.
When you get your income or salary, the amount of money you are able to keep after you take away what you owe is your net worth.
Therefore, we can say that your net worth is what you own (assets) minus what you owe (liabilities). Your salary is not your net worth.
The amount of money you make is not your net worth.
To know your net worth, you must get this value from the calculation of your assets and liabilities.
How Do I Calculate My Net Worth?
How do you calculate your net worth?
Calculating your net worth is quite simple and can be done by anyone.
If you do not have a lot of assets or liabilities that you can’t keep track of, you can calculate your net worth on your own. Here is how you calculate your net worth.
List your assets
Your assets are what you owe.
Do you know what your assets are?
Assets range from savings accounts, checking accounts, retirement savings accounts, life insurance policies or your own home.
If you have any valuable items like furniture, fine art or expensive jewellery, they also count as assets.
Have a list of what your assets are and know their estimated value so that you can use the figures in your net worth calculation.
List your liabilities
After listing your assets, start thinking about your liabilities.
Your liabilities are those things which you owe to other people.
They are basically debts that you need to pay off in one way or the other.
For example mortgage, student loans, taxes, credit card balances and personal or business loans.
You have to be very open when you are listing your liabilities and the approximate cost for your liabilities.
Subtract your liabilities from your assets
Once you have the values of both your assets and liabilities, you can go ahead and subtract the liabilities from your assets.
If after the subtraction you have a positive value, then it means you have a positive net worth, which is good because it shows that your expenses exceed your income.
If you have a negative value, then it means that your liabilities are more than your assets and you should find a way to increase your assets by, say, increasing your income.
Easy Step by Step How to Track Your Net Worth
If you want to track your net worth either in the long term or short term, here is what you have to do.
Create a list of your assets and liabilities
You have heard of what net worth is and now you want to track your net worth.
The easiest way to keep track of your net worth is to know your assets and liabilities.
It is much easier this way because whenever you add any assets or liabilities, you have to indicate them on your list.
This will keep you up to date with your list and you will avoid having a wrong net worth yourself.
Always create a list of all your assets and liabilities as a first step to tracking your net worth.
Some examples of assets and liabilities have been listed earlier in the article.
Use that as a guide if you do not know what assets or liabilities could be.
Choose your net worth tracking method
The next thing you need to think about is choosing a net worth tracking method.
There are two methods for tracking your net worth.
You can use a spreadsheet or opt for a software-based solution.
Now the spreadsheets, it is more manual and you will need to list your assets and liabilities and keep updating your spreadsheet in case of any changes.
If you are using a net worth tracker, it is much easier because the software you have chosen will do all the tracking for you.
Just make sure you choose a software tracking method that is convenient and reliable for you so that you can have an accurate net worth when you need to.
Add your assets and liabilities to your net worth tracker
After selecting your net worth tracking method, you can go ahead and add your assets and liabilities to your net worth tracker and find the value that comes about.
Your net worth tracker is going to depict a very accurate answer to what your net worth is.
All you have to do is keep on updating your list of the assets and liabilities in case of any changes.
That way, you will be confident about what your net worth is when you get the figures.
Continuously track your net worth over time
Tracking your net worth continuously is very important because your net worth keeps on changing.
You do not expect to always have the same income year in, and year out.
If you have a promotion, that means an increase in your assets.
Make it a point to track your net worth after regular amounts of time so that you can know your overall financial progress.
Have someone do it for you
It can be difficult sometimes for someone to track their net worth due to fear or anxiety about their financial habits.
For any reason, if you cannot track your net worth, have someone do it for you.
You can get a financial coach who is going to walk you through everything you need to know about what net worth is and how to track it.
You have to find someone who is reputable and trustworthy before you even trust them with important details such as your financial statements.
Having an accountant or a financial advisor on board will give you all the help that you need to track your net worth.
Why is Tracking Your Net Worth Important (11 Powerful Reasons)
You ask: why does net worth matter? Why do I need to track my net worth?
Tracking your net worth is important for the following reasons.
Net worth is an indicator of total financial health
Financial health is the state in which you are in terms of being wealthy or poor.
When you know your net worth, it indicates to you where you lie on the financial spectrum.
As you keep on tracking your net worth, you are able to move from the red end zone of the spectrum to the green end zone.
You need to know your financial health status by looking at what your net worth is.
Knowing your net worth helps to pay down debt
Is debt making you miserable?
Do you have so much debt that you have lost track of some of them?
Tracking your net worth will help you identify the debts you have and even help you pay them down.
As you write your list of liabilities and you stay very intentional about it, you will be able to break down every type of debt that is holding you back from growing your net worth.
When you know your debts, you can easily pay them off.
You may find that some of these debts are not too huge and when you keep your eyes focused on growing your net worth, you can get rid of them without much struggle.
A clear view of net worth makes for more accurate investments and goal setting
Are you thinking about making investments that will yield you high returns?
The first thing you must do is track your net worth.
Once you know what your net worth is, you get to have a clear perspective as to the direction you want to take in terms of investments.
Will you be going for short term investments or long term investments with your net worth?
What about the risk of the investments you are choosing?
Generally speaking, people who have low net worth will stick to high yield, low-risk investments so that they can protect their assets.
Net worth uncovers your less tangible investments
Another surprising benefit of tracking your net worth is that it helps you identify all the investments that are not giving you returns as you’d wish.
Perhaps you are investing your money into this business and it is making more losses than profit.
This now becomes a liability to you because you spend a lot of money to run the business when you are getting nothing from it.
When you start tracking your net worth, you will uncover this issue and then proceed with the right steps that will help you to grow your net worth.
Net worth helps you know areas where you spend too much money
Are you one of those people who cannot give an account of how and where they spend their money?
If so, then knowing and tracking your net worth is something that you should be doing.
Tracking your net worth is a good way to know what areas of your life you’re spending too much money on.
You will not only know this but also identify if they are worth it or not.
Once you have this information, you have to adopt good financial habits that will allow you to grow your net worth.
Can help with getting a loan
Do you want to get a loan and fund your financial dreams?
Tracking your net worth is one of the easiest ways to get your lenders to give you a loan.
Matter of factly, this is a necessary requirement for anyone who wants to borrow huge loans from any money lending institution.
Lenders want to see that you are capable of paying off your debt in one way or the other, by using your assets as collateral.
If you have too many liabilities, they consider you incapable or unworthy of a loan because your debt repayment ability is in question.
Once you track your net worth and grow your assets over liabilities, your chances of getting a loan increase.
It is a better measurement of wealth than income
I’ll start by saying this: your salary is not your net worth.
If you are using your income as your net worth, then you are mistakenly wrong.
The only way you can measure wealth accurately is by knowing your net worth.
Since you are adding up all you own and subtracting all that you owe, you have a more accurate value of what you are worth.
Your income doesn’t inherently show how much wealth you have.
You only know this when you also include your liabilities.
Knowing your net worth helps you save and invest
Do you want to save more money or invest?
You should track your net worth.
When you know your net worth, you will have that much-needed motivation to cut down on unnecessary expenses and save more in order to grow your net worth.
If you want to save more money, you should start by tracking your net worth.
A lot of financially successful people have talked about having a wake-up call when they started tracking their net worth.
It helped them make informed financial decisions and that is going to be very beneficial to you too.
Shows the true impact of your financial decisions
Your net worth is a true indication of the impact of your financial decisions over time.
The financial decisions you make around saving, budgeting and investing will be brought to life when you start to track your net worth.
It is easy to ignore the negative trends in our financial lives, but once we start to track our net worth, it becomes harder to watch your financial decisions negatively impacting your net worth while you sit by and do nothing.
You will be able to analyse your financial decisions and make better ones.
Results in better use of your money
Knowing your net worth and tracking it provides you with the motivation you need to use your money better.
This is because you know that when you use your money better, you can grow your net worth. And there is nothing as fulfilling as someone growing their net worth.
As you track your net worth, you will know the areas you need to spend wisely on.
You can save and invest more when you are most focused on growing your net worth.
Provides a measurement of your financial progress
Are you stuck on how you are progressing financially?
Do you know whether you are making positive or negative steps when it comes to your financial progress?
A good way to measure financial progress is by tracking your net worth.
When your net worth grows, you know that you are making the right progress financially and vice versa.
You can also find ways to address any issues that are hindering you from making good financial progress, for example, when you look at your liabilities.
Apparently, there is no better measure of financial progress than tracking your net worth.
FAQs on How to Track Your NetWorth and Why It’s Important
What’s net worth?
Net worth is your assets.
How much is rich in Kenya? or what’s considered rich in Kenya?
Those considered rich in Kenya are the POLITICIANS.
What’s the net worth of the top 1 per cent in Kenya?
The net worth of the top 1 per cent is 30 million dollars or 3 billion shillings.
How do I become rich as a Kenyan without becoming a politician?
You become rich as a Kenyan without being a politician by:
Knowing who you are/investing time in yourself – read books that improve you
Asking God for and about your purpose on earth
Trust in your heart
Working and changing your mindset.
How do I know I am poor?
You know you’re poor when:
You cannot pay your bills
Lose your source of income
Have no multiple sources of income
Addiction overshadows your life
Have no God
Have no sense of self
ONLY target cheap products because they save you money
Complain about the rich
Your mindset isn’t rich.
Tracking your net worth can be intimidating especially if you haven’t been putting enough effort into saving and investing your money. For starters, do not be intimidated.
Knowing your net worth enables you to make sound financial decisions that steer you towards achieving your financial goals.
If you have a zero or negative zero net worth, do not beat yourself up because of it.
Most financially successful people had to start from somewhere.
Start by clearing up your debt and reducing your liabilities.
This is what you must-do if you want to increase your net worth.
You also have to save, invest and look for different income streams and add to your assets.
If you don’t know your net worth, what are you waiting for?
Have a financial date with yourself and get all your receipts from your payslips to your loan statements.
Calculate your net worth and make a plan to keep good track of it.
You will have a clear view of your financial situation when you do this.
Do you know how much you’re worth?
Do you track your net worth?
Why do you track your net worth or why not?