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..

  1. 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!
  2. 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.
  3. 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.
  4. 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….:-)
  5. Measuring and monitoring NW is better than monitoring Income, Assets, and liabilities in isolation.
  6. 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.
  7. 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.
  8. It motivates you to reduce or eliminate debt.
  9. Shows how investing or repaying a loan has an impact on the NW.
  10. NW can ge a goal number for retirement or slowing down in business/service
  11. If you have calculated your NW and are monitoring, it means you are serious about your life goals.
  12. Shows the impact of your financial decisions during the year.

do you need more reasons? I will have to think more…

 

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. NW in this context may also be termed as ‘Wealth Index’! Its sensitivity w.r.t variations of individual components that constitute the NW can be easily checked and monitored. This single parameter speaks by itself.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.