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

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 single number can also be misleading, lead to bad decisions, or mean that you are missing important opportunities.

A More Detailed Look at What Net Worth Is

Net worth is the difference between your assets—like savings, investments, and property—and your debts, such as loans, credit card balances, or mortgages. It’s a straightforward calculation, but its significance can change depending on the time period for which you are measuring it.

• Your current net worth provides a snapshot of your financial standing today. However, without putting this metric into the context of where you have been (your financial history) and where you want to go (your goals for the future), it is somewhat meaningless.
• Net worth at retirement age shifts the focus to whether you’ve accumulated enough to sustain your lifestyle without active income.
• Meanwhile, net worth at longevity—the age you might live to—accounts for how well your resources will last across decades of retirement, factoring in variables like healthcare costs and inflation and will determine if you can leave a legacy for heirs.

Tracking net worth at these milestones encourages a long-term perspective, ensuring your financial strategy supports not only your present but also your future goals and security.

The Boldin Planner presents these milestones on the overview page as an important touchstone for how you are doing today and what that means for your future. See your net worth:

• Today and track month over month changes
• Next year
• In 10 years
• At retirement age
• Assess in which year you are wealthiest
• Appraise your net worth at your longevity

The Pros and Cons of Tracking Net Worth

Here’s a look at the pros and cons of tracking net worth and tips on keeping this overly vaunted metric in perspective.

The Pros of Tracking Net Worth

PRO: Promotes Better Financial Habits – Kept in context, checking your net worth monthly or quarterly is a good financial habit. Knowing your net worth encourages awareness of your spending, saving, and debt. This awareness can lead to healthier financial habits, like budgeting effectively or making more informed investment decisions.

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

• Net Worth of Boldin Subscribers: The average net worth of a Boldin subscriber is just over $3 million. People who have healthy financial habits do better than most.

PRO: A Clear Picture of Financial Health – Net worth gives you a snapshot of your overall financial position, helping you understand where you stand. It’s a simple, powerful way to track progress over time as you endeavor to:

• Reduce debt
• Grow savings
• Invest for the future

PRO: Encourages Goal Setting – Regularly tracking your net worth can motivate you to set and achieve financial goals. Watching your net worth grow as you hit milestones like paying off loans or increasing your investments can be incredibly rewarding.

PRO: It Can Increase Your Sense of Control Over Your Money – By tracking net worth, you are taking more control over your future wealth. Facing the facts of your financial situation may seem stressful, but it actually is the best way to start making the right decisions. You might not always like what you see, but you will be assured about where you stand and what you can do to improve your situation.

The Cons of Tracking Net Worth

While a useful habit, tracking net worth is not without pitfalls.

CON: It’s Only One Metric – While current net worth is important, it doesn’t capture the full picture of financial well-being. For instance, it doesn’t account for cash flow, income stability, or future liabilities like healthcare costs.

Try instead:

• Evaluate current net worth as well as how the metric will evolve into the future, especially at retirement age and longevity.
• Track net worth alongside other financial wellness metrics. The Boldin Planner scores you on 15+ different measures of financial health, with more being added each quarter.

CON: Can Be Demotivating – For some, especially those just starting their financial journey or facing setbacks, a low or negative net worth can feel overwhelming. This number doesn’t reflect potential or progress made in non-financial areas, like building skills or advancing a career.

• This is one of the reasons why looking at your net worth into the future is so important. You are better served on the actions you can take now to do better.

CON: Encourages Short-Term Thinking and Poor Decision Making – One downside of tracking net worth is that it can overly focus your attention on immediate gains or losses, potentially leading to impulsive decisions. For example, seeing a dip in your net worth due to market fluctuations might tempt you to sell investments prematurely, even when sticking to a long-term strategy would be wiser.

Similarly, an obsession with boosting net worth quickly could lead to prioritizing short-term wins, like hoarding cash or avoiding necessary expenses, over thoughtful, sustainable financial planning. This short-sightedness can derail long-term goals, such as investing in your education, health, or quality of life.

• To avoid this pitfall, it’s crucial to view net worth as one piece of a larger financial picture, keeping your focus on long-term growth and aligning decisions with your overall goals rather than short-term fluctuations.

Con: Too Focused on Assets – A high net worth isn’t necessarily a sign of financial freedom. For example, a home’s equity can inflate net worth but isn’t easily accessible for everyday expenses. Similarly, prioritizing net worth growth might lead to neglecting lifestyle goals or experiences that bring joy.

• Keep wealth in perspective. Your quality of life should always be a factor in financial decisions.

Con: Paints All Debt as Negative – Debt is a powerful wealth building tool when used wisely. If you own a home and have a mortgage, this housing debt can pull down your net worth significantly. However, home ownership has historically been one of the best ways to build wealth over the long term.

• Again, it is important to view your future net worth as well as where you stand today to build a complete picture of your financial health.

Keeping Net Worth in Perspective

Run Your Own Race

It is easy to compare your net worth to others’. (See average net worth by age.) However, it is really important to remember that nationwide comparisons are completely meaningless. To get a relevant comparison you would need to compare yourself to others in your own zip code with similar income, and home values and goals and values that are a identical to your own.

In some ways, your current net worth is an expression of who you are today. And, your projected net worth is an expression of who you want to be.

Just remember that you don’t necessarily need to have a high net worth to be financially secure.

Focus on Trends, Not Perfection

Net worth is most valuable when tracked over time, showing progress and highlighting trends. Don’t stress about fluctuations—market changes or big purchases can temporarily lower your net worth without reflecting your overall financial health.

Align Net Worth with Life Goals

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

Consider Other Metrics

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

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

Final Thoughts

Tracking your net worth is a helpful practice, but it’s only part of the story. By keeping this metric in perspective 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 holistic financial plan with the Boldin Retirement Planner. Track a range of financial wellness metrics, develop positive financial habits, make stronger financial decisions, and stay on track to the future you want.