The technical definition of net worth is your total assets minus your total liabilities. We think it’s larger than just that mere definition though; it really is the most important way to look at your finances and your financial health.
Here’s an example: Everyone always talks about the return on investment you’ll get if you renovate your kitchen or some other part of your house. I constantly hear, “oh, you’ll easily get back 80% of that “investment” in the value of your house”, as if that was a good thing.
What I hear when someone says that is, “I’m spending $30,000 to get new cabinets and granite countertops, that work exactly the same as my current perfectly functional cabinets and countertops and at the end of the day I’ll take the $30,000 that I had in my bank account (that I could otherwise invest to try to earn more money on) and it’s now only worth $24,000 onto the value of my house (80%). So I’m really $6,000 poorer to “add all this wonderful value” onto my house.”
That’s through the prism of net worth. Not the typical ‘my house is worth more than yours’ contest that most people think is important.
Compiling a Quarterly Net Worth Statement
It takes me 10 minutes every 3 months to compile my quarterly net worth statement and it provides a lot of detail so I see how things performed that quarter and I since I have 6+ years of quarterly info on this one excel spreadsheet, I can compare to prior years for the same 3 month period to see how I’m doing.
It’s also great to see your assets increase each quarter and your liabilities decrease each quarter; it’s really amazing how good that can make you feel and how much energy it can give you to keep it up the next quarter.
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