The Pros and Cons of Tracking Net Worth and How to Keep This Metric Positive

Net worth—the difference between what you own and what you owe—has become a popular way to measure financial health. While it can be a useful metric, focusing too much on this one number can also be misleading, lead to bad decisions, or mean you’re missing out on important opportunities.

A Detailed Look at What is Net Worth

Net worth is the difference between your assets—such as savings, investments, and property—and your liabilities, such as loans, credit card balances, or debts. It’s an exact number, but its value can change depending on the time you measure it.

• Yours current has a fair value provides a snapshot of your financial position today. However, without putting this metric in the context of where you’ve been (your financial history) and where you want to go (your future goals), it’s somewhat meaningless.
• Total amount at retirement age it changes focus on whether you have saved enough to support your lifestyle without income.
• Currently, it has longevity value– life expectancy – tells how well your resources will last during the decades of retirement, takes into account variables such as health care costs and inflation and will determine whether you can leave an inheritance to heirs.

Tracking the total value of these milestones encourages a long-term perspective, ensuring that your financial strategy not only supports the present but also your future goals and security.

The Boldin Planner presents these events on the overview page as an important touchstone of how you are doing today and what that means for your future. See the value of it all:

• Today and track the month-to-month changes
• Next year
• In 10 years
• In retirement years
• Check which year is the richest
• Evaluate the value of your entire life over a long period of time

Pros and Cons of Tracking Net Worth

Here’s a look at the pros and cons of tracking net worth and tips for keeping this highly regarded metric on track.

Benefits of Tracking Net Worth

PRO: Promotes Better Financial Habits – Keeping it in context, checking your net worth monthly or quarterly is good financial practice. Knowing your net worth encourages awareness of your spending, savings, and debts. This awareness can lead to healthy financial habits, such as effective budgeting or making informed investment decisions.

If you’re tracking net worth, use it as a window into which to focus your financial attention on what you can do now to improve your wealth in the long term.

PRO: A Clear Picture of Financial Health – Balance gives you an overview of your overall financial situation, helping you understand where you stand. It’s a simple, powerful way to track progress over time as you try to:

• Reduce debt
• Increase savings
• Invest in the future

PRO: Encourages Goal Setting – Regular tracking of your total worth can encourage you to set and achieve financial goals. Watching your value grow as you reach milestones like paying off your mortgage or growing your investments can be incredibly rewarding.

PRO: It can increase your sense of control over your money – By following the importance of value, you control your future wealth. Facing the facts of your financial situation may seem stressful, but it’s actually the best way to start making the right decisions. You may not always like what you see, but you will be sure of where you stand and what you can do to improve your situation.

Cons of Tracking Net Worth

Although it is a useful practice, tracking the importance of context is not without its pitfalls.

CON: Only one Metric – While current value is important, it does not capture the full picture of financial well-being. For example, it does not account for cash flow, income stability, or future liabilities such as health care costs.

Instead try:

• Estimate the current value and how the metric will improve in the future, especially in retirement and longevity.
• Track total value in conjunction with other financial wellness metrics. The Boldin Planner scores you on 15+ different measures of financial health, with more added each quarter.

CON: Can be motivating – For some, especially those who have just started their financial journey or are facing challenges, a low or negative value can feel overwhelming. This number does not reflect the strength or progress made in non-financial areas, such as building skills or developing a career.

• This is one of the reasons why looking at the value of everything in the future is so important. You are better served with actions you can take now to do better.

CON: Encourages Short Term Thinking and Poor Decision Making – Another downside of tracking net worth is that it can focus your attention too much on immediate gains or losses, which can lead to impulsive decisions. For example, seeing your net worth sink due to market volatility may tempt you to sell an investment early, even if sticking to a long-term strategy would be wiser.

Similarly, the obsession with increasing the value of money quickly can lead to prioritizing short-term benefits, such as saving money or avoiding necessary expenses, thoughtful, sustainable financial planning. This lack of vision can interfere with long-term goals, such as investing in your education, health, or quality of life.

• To avoid this trap, it’s important to look at net worth as part of the bigger financial picture, keep your focus on long-term growth and align your decisions with your overall goals rather than short-term fluctuations.

Con: Too Focused on Goods – A high net worth is not necessarily a sign of financial freedom. For example, home equity can increase total value but is not easily accessible for everyday expenses. Similarly, prioritizing profitable growth may lead to neglecting lifestyle goals or experiences that bring happiness.

• Keep the treasure in good condition. Your quality of life should always be a factor in financial decisions.

Con: Paints All Debts As Bad – Debt is a powerful wealth building tool when used wisely. If you own a home and have a mortgage, this mortgage can lower your cost significantly. However, home ownership has historically been one of the best ways to build wealth over the long term.

• Also, it is important to look at your future income and where you stand today to build a complete picture of your financial health.

Keeping Net Worth in Perspective

Run Your Own Race

It’s easy to compare your net worth to others. (See the average price by age group.) However, it’s really important to remember that national comparisons are completely meaningless. To get the right comparison you’ll need to compare yourself to others in your zip code with similar incomes, and home values ​​and goals and values ​​similar to yours.

In a way, your present value is a reflection of who you are today. Also, your measured value is a reflection of who you want to be.

Just remember that you don’t need to have the highest net worth to be financially secure.

Focus on Trends, Not Perfection

Net worth is most important when tracked over time, showing continuity and highlighting trends. Don’t worry about volatility—market changes or large purchases may lower your net worth temporarily without reflecting your overall financial health.

Align Net Profit with Life Goals

Use your net worth as a tool to measure progress toward what’s truly important to you, whether that’s financial independence, buying a home, or a comfortable retirement. Your life goals, not an abstract number, should guide your financial decisions.

Consider Other Metrics

Balance is worth tracking along with other indicators of financial well-being, such as cash flow, savings rate, and retirement readiness. These metrics provide a comprehensive view of your financial health.

Boldin’s Financial Wellness Score (part of the Boldin Retirement Program) assesses your financial strengths and weaknesses across 15+ different financial metrics.

Final thoughts

Keeping track of the value of everything is a useful practice, but it’s only part of the story. By keeping this metric on track and focusing on long-term trends and personal goals, you can use it as a guide without letting it define your financial journey. Remember, wealth isn’t just about numbers—it’s about creating a life that aligns with your values ​​and priorities.

Build and maintain a comprehensive financial plan with the Boldin Retirement Planner. Track dozens of financial wellness metrics, develop good financial habits, make strong financial decisions, and stay on track to the future you want.