The Importance of Tracking Net Worth

The Benefits of Tracking Net Worth

Measures your Financial Health
Knowing your current net worth allows you to visualize your overall financial picture. Where do you currently stand and are you making progress or falling behind. It should go without saying that overtime we want to see this number growing.

Foundation for Goal Setting
In order to set appropriate long term financial goals we need some sort of base to work with. Current net worth serves as that base and allows you to define and monitor those goals wether it be to save for retirement, reduce debt or purchase a home.

Highlights Problems or Issues
Sometimes it can be difficult to identify financial issues without tools that might draw attention to them. Calculating and regularly reviewing your net worth will help identify any problem areas wether it be excessive spending, high and/or increasing debt or poor investments.

Debt Tracking and Payoff Progress
Getting a clear view of total debt is essential as it is and anchor on total net worth. As you reduce debt net worth goes up! Tracking regularly enforces better debt management and shows progress as it gets paid off. These results are immediately reflected in net worth.

Retirement Planning
I would expect that most people’s motivation behind establishing financial well being is to ultimately someday to retire comfortably. Your total net worth is ultimately that nest egg that you will need to live on in those years. It is difficult to retire if you are carrying large amounts of debt and limited savings.

Improved Decisions Making

Everyone must carefully allocate their monthly income appropriately, as it is a finite resource. Knowing where you stand financially allows for significantly better decision making. Can you truly afford that new car? Understanding the potential impact to net worth overtime will help you make an informed decision. Ultimately it will allow you to make smarter choices around spending, saving, debt repayment and investing.

Accountability and Motivation
By regularly calculating and tracking your net worth you are holding yourself accountable. It forces you to review your financial standing on a regular cadence. This can be motivating as your watch your net worth grow thereby continuing to enforce positive financial habits.

Piece of Mind
Lastly, no matter the current net worth just knowing it provides piece of mind in knowing that the steps you are taking to improve it are the right ones. The journey will have ups and downs given that not everything is in your control but the comfort is in the growth over the long haul.

So what does good look like

This is a pretty common question and you would think that it would be a pretty straight forward answer. I think we would all agree that a net worth of 100 million is pretty good although likely not realistic for many. The answer can be highly dependent on a number of factors like age, geographic location, desired lifestyle and other personal factors. So what constitutes good?

Compare to the average
The average net worth in Canada as of December 2024 was $1,012,072. That’s a pretty big number but is average the best indicator. The issue with averages is they can be swayed by large outliers and unfortunately that’s what is happening here. The extremely wealth pull the average up and that’s exactly what is happening here. Not to get too political but there is a huge wealth inequality in Canada, in 2016 the top 20% held almost 70% of all wealth and the bottom 60% held only 10%. This is only getting worse over time.

Compare to the median
The median net worth for Canadian households in 2023 was about $520,000. The median is sometimes a better representation since it represents the net worth of the person exactly in the middle where there are an equal number of people with a higher net worth and an equal number of people with lower. It’s not biased like the the average given the wealth distribution inequalities.

Comparing to the average and median are somewhat useful since it at least allows us to compare ourselves to the overall population. However, it’s also pretty well known that net worth grows with age and that older generations hold significantly more wealth than younger ones. The average net worth for the boomer generation in Canada is around 1.2 million whereas the average net worth for millennials was quite a bit lower at about $491,000. So it’s probably slightly better to compare ourselves to people closer to our own age. See below.

	<35	35-44	45-54	55-64	65+
Net Worth	$337,816	$657,582	$1,346,291	$1,595,886	$1,123,174

This again is useful as it allows us to get a sense of where ideally we should be at different stages of our life and compare it to what the general average is. What’s not really answered here is are these good numbers? If I’m 38 and have a net worth of $700,000 is that actually good or not. That answer can depend but I would say not really. If our goal is to be financially healthy than our objective should be to be better than the average for our age group. What if we only look at what it takes to be in the top 10% with in those age brackets.

	<35	35-44	45-54	55-64	65+
Net Worth	$350,000	$900,000	$2,000,000	$2,500,000	$3,000,000

All this data is certainly enlightening and definitely heps to guide us on how to compare and what some some goals might look like.

Another way to look at it

Another way to try and determine what an ideal net worth for a given age would be to sue some sort of formula. For example, Thomas J. Stanley and William D. Danko in their book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy proposed one that can be calculated quickly. Simply take your pretax income and multiply it by your age and then divide by 10. Below I demonstrate what this might look like as someone ages and their income increases.

Age	Income	Total	Net Worth
25	$60,000	$1,500,000	$150,000
30	$75,000	$2,250,000	$225,000
35	$90,000	$3,150,000	$315,000
40	$105,000	$4,200,000	$420,000
45	$135,000	$6,075,000	$607,500
50	$145,000	$7,250,000	$725,000
55	$165,000	$9,075,000	$907,500
60	$175,000	$10,500,000	$1,050,000

If you are around the calculated net worth then you would be considered a Average Accumulator of Wealth. Anyone who is well below (<50%) is as an Under Accumulator of Wealth (UAW). Anyone that is significantly greater (x2) is a Prodigious Accumulator of Wealth (PAW).

This is surely a different way to look at net worth and trying to best determine where your goals should lie. However, there are some obvious issues with the formula, specifically at young ages when having any net worth can be difficult. Most people graduate owing large sums with limited to no assets and ultimately a negative net worth. To be honest, I think it’s a much too conservative in the later years if the ultimately goal is to retire comfortably.

Wrapping it all up

I’m hoping it’s clear that tracking your net worth is literally the running score card for your financial health. In a future post I will spell out exactly how I calculate my own with general guidelines to follow. I encourage you to first try to do it on your own. Simply, add up all your assets and subtract all your liabilities. How do you compare to the data above given your age and income? How would you rate your financial fitness as it stands today? Change starts with knowledge.