TEXT OF COMMENTARY
Bob Moon: We talk a lot on this show about credit scores: How to check them, how to raise them, how to avoid taking a big hit on that all-important ranking.
Well, Chris Farrell is here with his op-ed, The Straight Story, and get this: He’s actually here to say, forget all that. There’s an even more fundamental number we should all be worrying about.
Chris Farrell: Your net worth. Do you know it? I’ll bet most of you don’t. In theory, the net worth equation is simple: You add up the value of your home, your retirement savings plans, your savings accounts and any other asset that could be sold and turned into cash. You then tally up everything you owe, from your mortgage to your car loan to the balance you carry on your credit card. Your net worth is your assets minus those liabilities.
Of course, the basic idea may be simple, but it takes a lot of time and effort to gather all that information. If you’re like me, you have an account here and a debt there. Well, your record keeping might be a bit haphazard. I think that’s why many people don’t bother with the calculation. The good news is that there are plenty of worksheets in the library or book store to help guide you. Even better are the online resources — sites like mint.com and networthIQ.com — that are increasingly easy to use and update.
The net worth calculation gives you a good idea of how well you’re doing overall. If you have more assets than liabilities you have what’s called a positive net worth. You have a negative net worth, if the total amount you owe is more than you own. One advantage of figuring out the number is that it forces you not to ignore the bad stuff.
A few years ago, many people didn’t worry about their net worth. The unhappy history of recent events proves it’s vital to have an accurate gauge of your overall financial situation.
A note of caution: Let’s not turn your net worth figure into another obsession like the credit score. A number of bloggers follow their net worth by the month. I find it intriguing to follow, but as part of my research as a financial journalist. For most people, it should be a check-in you do every once in awhile, like a physical exam.
The reason I like net worth is that gathering the data and knowing your net worth forces you to grapple with all aspects of your financial life. To me, it’s a critical database or foundation for sensible financial planning.