There are a lot of arguments over what you should and shouldn’t track in your net worth. Your house value? Your cars? Shouldn’t you care more about your investments balance than your net worth? And yet I track my net worth every month, religiously, and have done so since I was 16. (It was a lot less impressive at 16, I promise you.) Shouldn’t you care more about how much you save in a month than net worth?
Why do I track net worth? I like that it is an overall picture of my finances. I’m a pretty detail-oriented person, which means that I’ll obsess over why I spent $5.32 on that random dinner and why did I not cook my own dinner at home instead of looking at the big picture. Tracking my net worth helps me to focus on the big picture. Sure, I haven’t gotten much of a paycheck since March and won’t get much of one until September, but I’m maxing out my 401(k) quite quickly, which is exciting in its own right. By looking at net worth instead of just cash flow, I am calmed to know that my net worth is still going up even though my cash flow is currently terrible. Money is fungible.
If I’m prioritizing paying down my mortgage, then my investments balance isn’t going to be nearly as exciting to track, but my net worth is still going to be doing great! If I’m bummed that I’m not prioritizing my mortgage at the moment, but I am stuffing my entire paycheck into investments, then my net worth is still going to be doing great. It is an overall snapshot of your finances at any given time.
It’s just like why I like to smooth my budget throughout the whole year. Monthly spending can get super lumpy. Some months this year I’ve spent $4-5k and other months I’ve spent $2-3k. That’s just the nature of expenses. There are more travel costs some months, insurance is paid out in one big lump sum, property taxes in two lump sums, sometimes my condo board does special assessments, some months have more presents to buy, and soon there will be grad school tuition (though I won’t be counting that in the spending that I report here). This year, I did a spending estimate for the year by breaking things down by category/item for the entire year and then estimated which month and quarter this spending would fall in. I expect some quarters/months to be more expensive than others. I can look at that and know that I’ll most likely spend less money in Q3 and Q4 than I did in Q1 and Q2 and that helps me not obsess as much over my spending being high in a particular month, unless there were huge unexpected expenses.
I also like net worth in that it is reasonably anonymous. Your income and some of your expenses aren’t that anonymous, nor is the value of your house (public records and all), but until my mortgage is paid off (as far as I know), that is reasonably anonymous, as is my net worth. My 401(k) provider doesn’t know my entire net worth, nor does my mortgage company, my savings account bank, my credit union, or my investments firm.
That said, even though I track net worth, I don’t make goals against it. I don’t set a goal to hit $N in net worth by the end of the year. That would be silly when my stock investments could drop 50% in a year. I set goals based on how much I want to put into savings in a particular year, broken down by category.
Readers, how old were you when you started tracking your net worth? Why do you track net worth?