Money is not everything but even then you should know your net worth, that is, how much you current assets are worth minus your liabilities. Examples of assets can include, your house, car, valuable jewellery and liabilities is essentially all the debt you have including your mortgage. Until recently, I did not bother much with knowing my net worth because it wasn’t a priority for me but as I grow older and start to tally up my assets, I am excited to build my asset portfolio to something I would be happy to retire on.
There are many reasons why you should know your net worth but I will only focus on three and I will also share simple tips on how you can increase your net worth. It is starts and ends with budgeting, use a budget tracker to know to give your money a home, know where to cut back, how much to save and how much you can allocate towards clearing your debt or liabilities. Knowing your net worth is also part of financial planning which is something I think is so important for everyone to get on board with.
*Disclaimer – I am not a financial advisor.
Why You Should Know Your Net Worth
At the end of last year, I came across a video talking about how to calculate your net worth. I was curious because I do have both assets and liabilities and I wanted to know if my net work was a negative or positive number. I proceeded to calculate my net worth and to my surprise it was a positive number and this motivated me to want to increase it throughout this year. Below is how I calculated my net worth, you can also use this simple to use net worth template or monthly net worth tracker which can be purchased from my Etsy shop.
As mentioned above, your net worth is your assets minus your liabilities and my worked out to be ~£450k in assets and ~£230k in liabilities giving me a net worth of ~ £220k. Since end of last year, I have worked hard to pay extra towards my mortgage, clear unnecessary expenses, increase my investments as well as my savings. I still have my car which I got on hire purchase to pay off by the end of this year which will increase my net worth although not by much because cars depreciate in value over the years and my new car is already 3 years old.
I can’t tell you how happy I feel looking at my net worth which since December has increased from ~£220 to ~£250. I decided for me it’s worth tracking my net worth quarterly as I see more of a change than monthly tracking. For those who are interested in tracking their net worth, below are three reason why you should know your net worth and 5 ways to improve it.
Gives you an idea of how you are doing financially
When I calculated my net worth I immediately hard an outlook on how I am doing financially and some of the improvements that I could make in my life. I have been hard at worth managing my money with trackers and apps and also budgeting every single month. My statement for the year has been, “live below your means” and I have been doing exactly that. I got a promotion at work last year and I made sure to save every cent of the extra pay that came with the promotion. I am still living on my previous year’s income and I am happier for it.
Can act as motivation to get out of debt
For many people, seeing their net worth as a negative number works as a motivator to get out of debt and increase their assets. I have mentioned before on this blog that I have a Klarna loan for my peloton bike which is about £1000 left. I have the money in my fun pot but I signed a repayment thingy which means I can’t pay them off early which is annoying. My car was purchased via hire purchase and thankfully the loan is interest free and I am repaying extra so that at the end of the year, I can pay it off and won’t have car repayments in my budget. As for the mortgage, since I got it last year, I have been making extra repayments and it’s good seeing the number decrease every month.
Helps you make better financial decisions
As you can see above, since learning of my net worth and what it could potentially be, I embarked on a self discovery journey to see how I could best manage my money and assets. How I can increase my asset value and in the next net worth update end of Q2 2021 which I shall share on my YouTube channel, you will see once of the financial decisions I made to increase my asset value and slowly decreasing my liabilities. Other financial decisions that I have been making include not paying for anything on credit (ever) and saving up for it instead. One of the big cash purchases I want to make in the next 5 years is buying a car with cash and not on credit.
5 Ways to increase your net worth
- Pay off your debt – every single time you pay off a portion of your debt it’s a positive change for your net worth
- Increase your savings – saving money is another way to increase your net worth but don’t neglect paying off your debt just so you can have savings in your net worth tracker
- Pay extra towards your mortgage – an extra £100 repayment towards a repayment mortgage can cut months to your total repayment duration
- Credit cards are liabilities – refrain from using them and if you don’t pay off the card and don’t leave any debt of them as that is a negative tick against your net worth
- Be patient if your net worth is a negative number, follow the steps above and it will turn positive as you reduce your liabilities and increase the value of your assets.
Do you tracker your net worth? If so, how often? If not, why not? Don’t think of net worth as something only rich people do but rather your financial status, things you can leave your kids or other family one day.
Everything Enchanting says
Such a great read! I haven’y yet calculated my net worth, never thought about it honestly! But after reading this post, I am so inspired. Now, I need to know it!
Ickle Pickle says
I am afraid to say my financial knowledge is absolutely awful – I have to look into it more, thank you. Kaz
imbuedman says
TBH, I’d never thought I had much worth measuring never mind actually knowing my net worth. I always saw it as something for (Forbes) celebrities.. Lol. However, having read your really enlightening post, I would start measuring it and working to increase it. Thanks for sharing.
Khushboo says
These are very helpful tips and I really need to start saving and work on my expenses
Prajakta says
That’s a great article. I had never thought about it but after reading this I think I need to do it.
Rebecca Smith says
I have never tried working this out but I definitely need to! I still have a little bit of debt I need to pay off so I will be calculating this and using it as extra motivation!
Jenni - Odd Socks and Lollipops says
Now this is really interesting and gives me a lot to think about. I really want to start paying a little extra off our mortgage as it can make such an impact.
Kira says
This was a brilliant read and definitely an eye opener for me for sure
MELANIE EDJOURIAN says
That’s really interesting and a good idea too. I hadn’t really stopped to think about calculating it to be honest.
Synergistic Living says
putting some of these into practice has helped us buy land on 10 acres to raise our 3 kids and start our homestead even with a layoff during Covid- it’s been life changing!
forkwardthinkingfoodinista says
This is brilliant. anything that helps people to look at their finances in more detail is super important x
Maritime Meg says
Wow! First of all congrats on all your progress to improve your net worth! That’s really great! These are really great tips and I honestly never gave it a thought before to calculate my net worth. This was really interesting and I’ll need to give it a try! Thank you!
Yeah Lifestyle says
I have never calculated my net worth before so this is something I would want to be doing going forward as I know the reasons why I should be doing it.
Cathy says
It’s not funny if we’re always struggling with money. Money is the cause of my anxiety. Thanks for those helpful ideas about how to increase our net worth. Money is meant to be earned, spent, saved, and most of it all be invested to generate growth.
kacielmorgan says
I’ve been hearing lots about net worth and how to calculate it lately. I’ve never really given much thought to it.
Rhian Westbury says
This would definitely be something to motivate me to pay off the mortgage more or invest more, but I don’t know if I’d want to know my net worth as I’d be so sad if it was negative x
Michele @ ourredonkulouslife says
With my student loan debt… I know my net worth is in the negative. I am working to change that, but it is not happening fast enough.
Anuradha says
It really is important to know ones worth financially and where they stand in terms of money. It definitely helps in planning for a long term, and make some changes that will help save some money!
Hang Around The World says
Yes, this is so important and I know something about because it is something I do. This has been a good reading with good tips. Thanks for sharing. – Paolo
bye:myself says
Funny enough, my bank does that for me – every time I access my account online, I see this balance. Don’t know if I appreciate it, though 😉
Mudpie Fridays says
I have a rough gauge but have not included chattels in calculating my networth. Maybe I should! I’ve still a way to go until I hit the number I’m aiming for!
clairelomax2018 says
I have never even considered my net worth.before. But I think it would certainly act as a real incentive to build that number up x
relatablyrachelp says
I never thought about this. Great points!
relatablyrachelp says
I never thought about the necessity of knowing. You make some great points
Sarah Howe says
I’ve never really thought about this but yet I’m often scrolling through my banking app! I bet it really can be a great way to get motivated to pay off debt.
Alyssa says
If you really want to grow your savings and be financially independent, it’s so important to know your net worth and become more aware of where you are spending your money. Thank you for the tips!
tiredbutcraftymummy says
I think it would be so helpful if topics like this were taught in school so children know right from the off how to understand their money. I really like your final tip of being patient. Money matters are definitely a marathon rather than a sprint.
Samantha Donnelly says
I do not really think about what my net worth is, but after reading this it is probably more than I actually would have thought it was
Geordie Grandma says
Interesting post. Net worth is not really something I’ve ever thought about, but as I’m nearing 60 maybe it’s something I should be thinking about! I think I’ll have a go at this as a view to seeing where I can make savings and some extra money.
Lyosha Varezhkina says
very interesting post. I have never gave it much thought but after reading I do understand I need it
Cristina Petrini says
Glad to read that the advice you give is already what I apply daily, it is the sign that I am doing well!