If there is only one number that you are going to track in your personal finance life, then it has to be your NET WORTH. I am assuming that all of you know that Net Worth (NW) . Ok NW is YOUR financial assets minus financial liabilities = amount of money that is working towards your financial freedom.
So you must monitor your NW. In case you do not know why you should monitor net-worth…read on..
- It is easy to track, so it should be done! As long as you have a decent software or app tracking this number is not difficult at all. So it should be done!
- It is one number which tells you where you are going..and it is just one number to monitor. It is a comprehensive number which takes all risk, income, asset allocation into account.
- Monitoring helps you take decisions like “should I repay the loan or invest the money”. Whatever is good to increase the Net Worth is what is to be done.
- It puts thing in perspective. When your dad says “You have taken Rs. 2 crores as a housing loan, I took Rs. 12 lakhs”, you remain calm and tell him on a net worth of Rs. 8 crores, having a Rs. 2 crore debt is better….:-)
- Measuring and monitoring NW is better than monitoring Income, Assets, and liabilities in isolation.
- No guessing about what should happen – NW should keep going up. How fast or how slow does not matter, but it should not go down. Direction is important, not speed.
- It takes your mind off the day to day movement of say one share that you have! It hardly matters if it is 2% of your assets. Otherwise it occupies too much of your mindspace.
- It motivates you to reduce or eliminate debt.
- Shows how investing or repaying a loan has an impact on the NW.
- NW can ge a goal number for retirement or slowing down in business/service
- If you have calculated your NW and are monitoring, it means you are serious about your life goals.
- Shows the impact of your financial decisions during the year.
do you need more reasons? I will have to think more…
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