What is net worth and why track it?

Net worth is a financial metric that represents the total value of all assets minus the total of all liabilities. It serves as a comprehensive snapshot of an individual’s financial health at any given point.

Why Track Net Worth?

1. Financial Health Indicator: Tracking net worth provides a clear picture of whether you are moving toward financial independence. By comparing assets and liabilities regularly, you can gauge your financial stability and progress over time.

2. Debt Management: It helps in assessing how much debt you have compared to your assets. Seeing net worth increase over time can be motivating, especially as debts are paid off and assets grow.

3. Goal Setting and Planning: By understanding your net worth, you can set realistic financial goals and plan effectively for future needs like retirement, investments, or large purchases. It serves as a benchmark to measure the impact of financial decisions and lifestyle changes.

4. Psychological Benefits: There is psychological value in knowing your financial score. It can either provide peace of mind knowing you are on the right track or serve as a wake-up call to adjust your financial habits.

Here's a more detailed insight from Brad Barrett on the control you have over expenses and how it relates to your financial independence number: Brad Barrett emphasizes control over your life costs to determine your financial independence number, illustrating with simple math how expenses and savings significantly impact your financial future 1.