Tracking your net worth can help set and achieve financial goals: here’s how to do it

Tracking your net worth is not only for high-net-worth individuals.

Have you ever wondered what your net worth is? Your net worth is a powerful metric that gives you a clear picture of where you stand financially and helps you set goals for the future. Whether you're just starting to manage your finances or you're working toward bigger financial goals like buying a house or retiring, tracking your net worth is an essential practice. Here’s how to do it and why it’s so important.

Why Tracking Your Net Worth Matters

Gives a Clear Financial Picture
Tracking your net worth provides a comprehensive view of your overall financial situation. It reflects the total value of your assets (like savings, investments, and property) minus your liabilities (like loans, credit card debt, and mortgages). This big-picture view helps you understand your current financial standing.

Helps Set and Achieve Financial Goals
By regularly monitoring your net worth, you can see how your finances are improving over time. This is motivating and helps you set realistic goals—whether it's saving for retirement, paying off debt, or buying a home. It also highlights areas where you can improve.

Encourages Better Financial Habits
When you track your net worth, you become more mindful of your spending and saving habits. If you see your net worth decreasing, it can push you to make better decisions, like cutting unnecessary expenses or focusing on debt repayment.

Measures Financial Progress
Tracking net worth over time allows you to measure your progress toward financial milestones. Even small improvements month after month can show you that you're moving in the right direction.

Prepares You for Financial Planning
Knowing your net worth is key when planning major financial decisions, such as buying a home, investing, or planning for retirement. It helps you understand what you can afford and when you’ll be ready to take the next step.

How to Track Your Net Worth

List Your Assets
Begin by listing all of your assets. Assets include everything of value that you own. Common assets include:

• Savings accounts
• Investments (stocks, bonds, mutual funds)
• Real estate or property
• Retirement accounts
• Vehicles
• Personal property (valuable jewellery, art, etc.)
• Be sure to use the current market value for each asset.

• Mortgage loans
• Student loans
• Credit card debt
• Car loans
• Any other outstanding debts

Net Worth = Total Assets – Total Liabilities

For example, if your assets total ₹30 lakhs and your liabilities are ₹10 lakhs, your net worth is ₹20 lakhs.

Use Net Worth Tracking Tools
To make tracking easier, consider using tools like personal finance apps, spreadsheets, or online calculators. These tools allow you to link your accounts and automatically track your net worth over time.

Update Regularly
Tracking your net worth is not a one-time activity. Regularly updating your assets and liabilities—either monthly or quarterly—helps you stay on top of your finances. This allows you to see trends, celebrate progress, and address issues as they arise.

Tips for Increasing Your Net Worth

Pay Down Debt
One of the fastest ways to boost your net worth is by reducing liabilities. Focus on paying off high-interest debt first, such as credit card debt, and work toward becoming debt-free.

Increase Savings and Investments
The more you save and invest, the higher your net worth will grow. Focus on building an emergency fund, contributing to retirement accounts, and investing in assets that appreciate over time.

Avoid Depreciating Assets
Some assets, like cars, lose value over time. When making major purchases, consider the long-term value and how they will affect your net worth.

Boost Your Income
Increasing your income through side gigs, promotions, or new job opportunities can help you grow your assets faster, allowing you to save and invest more.

Tracking your net worth is a fundamental part of managing your finances and planning for the future. It not only provides a clear understanding of where you stand financially but also helps you set goals and improve your financial habits. By regularly calculating your net worth and making adjustments along the way, you can steadily build wealth and achieve financial stability.