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It won’t cover other important parts of your life that also affect your decisions, and it may even give the wrong impression. Your financial net worth is just that: financial. After all, not everything can be sold as easily as a car, and everyone can have things that they just don’t want to sell. While your net worth helps you see the big picture about your personal finances, it doesn’t give you the whole picture. What Your Financial Net Worth Doesn’t Show You might have options to consolidate or deal with your debt using equity you didn’t know you had.

When you have a goal to get out of debt, your net worth (or rather, the calculations behind it) can shine light on possible solutions. On the other hand, a $1000 bonus might have you planning your next big purchase, but if you remember that your net worth is still being held down by issues like debt, then you might have important second thoughts before clicking that order button. Keeping this big picture mentality in mind will help you avoid focusing too much on smaller parts, especially when changes happen.įor example, a sudden emergency that costs you $1000 might have you feeling like the world is ending, but comparing this to your overall net worth could put that into perspective and help you realize that things might not be so bad after all. Your net worth is useful because it gives you half of the big picture on your financial situation (the other half being your monthly income and expenses). How Knowing Your Financial Net Worth Helps You It will also naturally change as time passes, so a good rule of thumb is to calculate your net worth at least once a year and also whenever you need to use it. Of course, your net worth changes as you earn and spend money, which are 2 things you can easily track with our Income & Expense Tool. The number you get after following these 4 steps is your financial net worth.

While the more accurate the better, it’s okay to make rough estimates.

Add the values of all assets you own, including vehicles, properties, and personal items like jewelry, art, and antiques that have been appraised (i.e.

This includes cash in your wallet, money in your bank account, and the dollar values of any investments you own, including what’s in your TFSA and RRSP accounts. If tallying up all of the above at once feels overwhelming, then here’s a breakdown of steps you can follow: To give a simplified example, if you own a house that’s worth $400k and have a mortgage of $300k, then your net worth is $100k. The money you owe are your debts, including credit card balances, outstanding amounts on lines of credit, and any loans you’ve taken out. The money you have are the bills in your wallet, the balance in your bank account, and the dollar values of some of your stuff: your vehicle, property, valuable possessions, investments, etc. It’s more than just equity because it accounts for your savings too. Put simply, your net worth is the money you have minus the money you owe. If you’ve never calculated your net worth before, then knowing how it works will help you understand how knowing where you stand helps you. However, like knowing your expenses and debts, knowing your net worth can help you take stock of your financial health and set goals for improving it. When’s the last time you chatted with friends about your financial net worth? Probably never, and for good reason since that’s not much of a topic for casual conversations.