Building strong money habits and reaching your financial goals requires that you focus your attention on many different aspects of your financial situation. Unfortunately, life is fast paced with several different ways for our attention to be diverted. So how are we to quickly know how we are doing? Focus on your net worth.
First, why is it important to do a mid-year financial review?
With six months still remaining in the year it provides time to make any corrections if you are behind on any goals. This review also provides the opportunity to reset goals if your financial situation has changed since the beginning of the year. The mid-year review will also yield insights that you can use for any upcoming decisions.
What should be the focus of this review?
A good place to start is your personal net worth – all of your assets such as personal belongings, savings, investments minus all of your liabilities which is mostly debt. In 6 months it is very likely you have had several opportunities to impact your net worth both positively and negatively.
Why is your personal net worth such an important number to track?
Your net worth better reflects your overall picture rather than focusing on just your budget, debt or savings goals. The change in your personal net worth provides the overall perspective that can help you make important choices for the reminder of year.
How does tracking your net worth help with making financial decisions?
One good example is deciding about debt to incur. Adding credit card debt to finance a vacation is going to lower your net worth, while adding debt to finance a home will be neutral and then quickly add to your net worth. Seeing how debt or savings impact your net worth is an easy way to make financial choices.
What is another benefit of growing your personal net worth a primary goal?
Tracking your net worth position provides perspective on your other goals. For example if you missed your debt reduction goal and exceeded your savings goal, you might feel good about at least meeting one goal however if your net worth remained the same or decreased, you would understand that you really didn’t accomplish any goals and need to make adjustments.