There’s a never-ending list of things you should be doing with your money— growing your income, slashing your expenses and saving for retirement. It can be hard to keep up and even harder to understand if you’re on the right track.

Between student loan payments, wedding funds, dreams of travel and career advancement, the struggle is real.

But luckily, there’s one metric that can give you a clear picture of how well you’re really doing with your money…. unfortunately most of us don’t know it.

Your Net Worth

 

Your net worth is your single most important financial number. 

 

That’s right, more important than your salary, your debt load or anything else. 

To calculate your net worth, you need to subtract your liabilities (what you owe) from your assets (what you own).

• Your assets include any money that you have, (think checking, savings and investment account balances), plus the current value of any big ticket items that you own. For most people, this includes things like retirement accounts, emergency funds, houses and cars.
• Your liabilities are debts that you owe. From student loans to the unpaid balance on your mortgage or car, your liabilities include any money that you have borrowed and are currently paying back.

Here’s the formula:

Your Assets – Your Liabilities = Your Net worth

 

While most of us know our salaries, our debt balances and our savings totals, when it comes to net worth, we’re often flying blind.

In fact, the vast majority of millennials, 73%, have no idea what they own versus what they owe. Which is kind of crazy when you consider that your net worth is the single most comprehensive metric for tracking your financial health.

 

Why Is Your Net Worth So Important Anyway?

 

Unlike your assets, you don’t own your income. You only own the part of your income that you keep. So income alone isn’t sufficient in providing a clear picture of your financial health.

 

[clickToTweet tweet=”You don’t own your income. You only own the part of your income that you keep.” quote=”You don’t own your income. You only own the part of your income that you keep.”]

 

Not convinced? Consider this…

 

According to a 2015 survey, about 25% of six-figure earners are living paycheck to paycheck.

 

In other words, you can make a sweet $10,000+ a month, but if you’re spending everything you earn, you’re still netting zero.

If and when something should happen to your income, (due to retirement, a lay off or a voluntary career break), you’d be back at square one.

 

If Your Net Worth Is Negative…

 

According to a recent analysis by the New York Federal Reserve about 15 % of US households have a negative net worth.

 

One in eight of these negative net worth individuals has a graduate degree and 43 percent have a college degree.

 

In short, you can can have a good education, a good job and a good income and still have a negative net worth.

 

If you’re a millennial preparing to calculate your net worth, it’s also important to remember that you are currently building the foundation for the rest of your life.

You’ve probably made some big investments in your future—school loans, maybe some credit card debt. The cost of which may be a negative net worth – for now.

Taking stock of your financial life and calculating your net worth is not an exercise in judgment or comparison. It’s not about having a high, or even a positive, net worth. It’s about knowing where you stand, taking ownership of it, and committing to always moving forward in your financial life so that your net worth increases over time and eventually provides the infrastructure to support your big, bold goals and dreams.

 

How I Track My Net Worth

 

I use Personal Capital’s free software to aggregate all of my assets and liabilities to track my net worth in real time.

This isn’t my account, (I’m not about to publish ALL of my sensitive account info), but here’s an example of what the Personal Capital dashboard looks like…

 

 

Having a visual snapshot of where you stand financially at any given moment can be a powerful in the moment gut check when asking yourself questions like ‘Can I afford it?’ or ‘Is this purchase going to bringing me closer to or push me further from my goals?’

Click here to start your own free account.

 

Net Worth In Action

 

Let’s look at a couple examples to see what net worth looks like in action…

 

• Kelsey, 26, New York

 

Kelsey went to a private four-year college and graduated with about $30,000 of debt.

After graduation, she moved to New York City to pursue her law degree at NYU. The city is expensive and even though she learned how to save money in New York City, she also took out $150,000 in loans in order to help pay her rent, tuition and the occasional taxi on the weekends.

Two years later, she graduated from NYU as a freshly minted lawyer ready to change the world and landed a corporate job at a big bank.

She’s been at her job for three years now and her salary has steadily increased. She currently earns $250,000 per year (not including bonuses).

She’s been paying her loan payments each month, but her current goal is to buy a one-bedroom apartment in Brooklyn. So far, she has a $40,000 saved. She still owes $100,000 on her loans, but has an additional $40,000 in her employer sponsored 401(k).

Alright, let’s dive into the numbers and do a quick and dirty calculation of Kelsey’s net worth.

 

Assets:

Savings: $40,000

Retirement: $40,000

TOTAL: $80,000

 

Liabilities:

Student loans: $100,000

TOTAL: $80,000

 

NET WORTH: $100,000 – $80,000 = (- $20,000)

 

Even though Kelsey has done an excellent job of saving money as she begins her career, she is still at the beginning of her debt repayment journey. Because of that, her net worth is negative.

A negative net worth might seem to imply that Kelsey isn’t doing well, but she is actually in the perfect place to grow her wealth and ensure that her 30’s (and beyond) are filled with the things that she’s been dreaming about— her own apartment and more international vacations.

As long as she continues to save while paying down her debt, her net worth will continue to grow each year.

In other words, Kelsey is in an excellent position to create long-term wealth, (If she maintains good financial habits and starts keeping tabs on her net worth to motivate her progress).

 

• Marina, 21, Colorado

 

Marina is a graphic designer. She took enough design classes in high school to know that college wasn’t a requirement in order for her to advance her career. Instead, she took out a personal loan for $10,000 and invested in online graphic design classes while starting her own online business on the side.

Three years later, her business is doing well and she’s earning $5,000 per month. Marina is focused on paying her loan and continuing to invest in her business’ growth.

She has a Roth IRA with a balance of $3,000 and still owes $5,000 on her loan.

Because she’s an entrepreneur and her income can fluctuate month-to-month, she also has an emergency fund of $10,000.

 

Assets:

Savings: $10,000

Retirement: $3,000

TOTAL: $18,000

 

Liabilities:

Loan: $5,000

TOTAL: $5,000

 

NET WORTH: $18,000 – $5,000 = $13,000

 

Thanks to Marina’s low amount of debt, her net worth is a cool five-figures.

By continuing to invest in her career and pay down her debt, she is in the perfect position to rapidly grow her net worth throughout the rest of her 20’s.

 

Your Net Worth: The Bottom Line

 

Regardless of whether your net worth is negative or positive, the most important thing is tracking it while practicing smart financial habits like paying down debt and saving for the future.

If you’re doing that, your assets will continue to grow and your liabilities will continue to shrink, increasing your net worth over time.