When putting together a budget or trying to get a handle on your finances, it helps to know your net worth. Your net worth is the value of all your assets minus the value of all to your debts and liabilities. It represents your financial health at a certain point in time. Your net worth is important because before you can put together a budget targeted towards achieving certain goals, you have to first know where you stand financially at the current time.

Your net worth is a number, and it is either plus or minus. A positive net worth indicates that, at least for the moment, your financial health is ok.  How ok depends on how much above zero, comparative to your ongoing expenses, it is.  A negative number is always a bad signal.  And depending on how negative your net worth is, it could signal that you are dangerously deep in debt and almost bankrupt, or it could simply mean that you are going through a difficult financial period which will soon pass.

In a way, knowing your financial health is almost as important as knowing your physical health. The status of both determines your quality of life.

Your net worth is represented in document form by a Net Worth Statement.  Very few families keep good financial records and know their net worth. Unfortunately, the majority of families have never created one. But having one on hand at any given time is a good way to monitor your financial situation over the months and years. It is one of the most effective financial early warning systems that you can have.

In addition, however, your Net Worth Statement can keep you from making huge financial mis-steps. For instance, quite a few people will purchase a new automobile with a minimal amount of consideration. If they believe they can make the monthly payments and afford the insurance, it is ok with them.

Putting the figures on your Net Worth Statement however, may show you in stark black and white figures that, if you buy the car, even though you can make the monthly payments, you will put a huge dent in your net worth. And based on that, you may decide not to buy a new car or you may decide to buy a less expensive new car.

The point is simple. If you did not have the Net Worth Statement as your compass, you may have made a significant financial decision based on your gut.  You would have felt that you could afford it, not taking into account the effect that it would have on your financial situation as a whole. And that is the real benefit that tracking your net worth on a regular basis will bring to you.

We invite all of you to get a discussion going.  Please submit your comments at the end of this article, Thanks.