A practice that is very popular in the world of personal finance – among both personal finance bloggers and non-bloggers who just watch their money – is net worth tracking. Net worth is essentially a measure of an individual’s personal wealth. In case you’re unfamiliar with how net worth is calculated, the formula is actually pretty simple:
Total Assets – Total Liabilities = Net Worth
Obviously, if you have a lot of debt and very little savings, that net worth figure will be negative. Which is not what we want. Which is why a lot of people compute their net worth at the end of every month and track the direction that figure is heading. Except for me.
Why don’t I calculate my net worth on a monthly basis? On the one hand, I think that what counts as an asset is a little bit debatable. Liabilities are pretty straightforward – for me, right now, my only liability is my student loan – but assets are trickier. Should I count my car as an asset? I could probably sell it for about $7,000 right now, but that makes a lot of assumptions. Also, what about my pension? It gains value every month but it’s so illiquid, I don’t really like the idea of even thinking of it as an asset. And what about my checking account? Money is in and out of that account all the time – it would be almost impossible to figure out its “value” when it changes so frequently; sometimes I think I should just get it over with and go for an accounting certification. At any rate, I obviously have some money in checking all the time so I don’t think I should completely disregard it.
On the other hand, I just sort of think there’s something weird about labeling people with a monetary value. I can’t exactly explain why I feel this way, it just feels wrong to me to think about what I’m “worth” in monetary terms. Some people really like to see concrete numbers when it comes to how much their wealth is growing every month; it really motivates them to stay on the straight and narrow, financially speaking. I’m not one of these people.
That being said, I like to generally know that my net worth is moving in a positive direction. That’s why I scheduled my Roth contribution for the same day of the month as my student loan payment. For me, the 20th of every month means that savings are going up and debt is going down, i.e., that my net worth is making a jump every month on the same day. But I just can’t get into the idea of sitting down every month and calculating exactly what my net worth is, down to the last dollar. Again, I can’t explain it. To me, it just feels weird.
Do you calculate your net worth every month? Why or why not?