How Meaningful is Net Worth?

Many, if not most, PF bloggers consider net worth to be the most important financial measurement.  It certainly is the most common. This makes sense because it is pretty easy to figure. Just subtract your liabilities from your assets and you have your net worth. For the most part it is probably a pretty accurate measure of one’s financial status. However, there are plenty of situations where it is not a meaningful measure of indicating one’s financial status.

My net worth is roughly -$65,000 and it will get worse before it gets better. It is negative because of the loans I’ve taken out for law school. My net worth doesn’t reflect any value I’m receiving from going to law school.  If I don’t complete law school there won’t be any value so maybe that is accurate. Right now though I have a lower net worth than the homeless guy begging for money on the street corner. Few people would think he is better off than me financially though.  It will be a long time before my net worth is positive even after I finish law school and get a job. That makes net worth not a meaningful financial measurement for me.  I’m not sure what measurement would be the most meaningful to me but I’m going to be focusing on what percentage of my income I’m dedicating to savings and debt repayment. That should give me a good idea of what progress I’m making.

4 thoughts on “How Meaningful is Net Worth?”

  1. You know, as you climb out of the hole of negative net worth, you’ll see that net worth is valuable to track. Sure it’s -$65K, but as it shrinks and approaches $0 and then grows, it’s nice to be able to see how far you’ve come.

    Now is it worthwhile to measure it monthly? Maybe not. Perhaps you’ll get more value out of measuring it quarterly or yearly.

    Student loans take a while to repay, but it’s worth measuring your net worth so you can see the light at the end of the tunnel as it approaches.

  2. I don’t think most people think it is so meaningful. It is just a good and easy way to track your personal progress. It falls apart when you start comparing to other people’s “net worth” because of the issues you mentioned.

  3. mapgirl- I do plan to start tracking my net worth once I finish school. Right now it doesn’t help though because even though I save money,I take out more in loans.

    SP- You’re correct. It is better for tracking personal progress.

  4. I didn’t start tracking my net worth until I got stable with a nice paying job, in college I felt it made no sense because I was more interested in cash flow


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