Are You Tracking Your Net Worth?
June 5, 2026 - Families sometimes don’t track their finances at all, while others track income, bank balances, investment accounts, home values, or the performance of a particular asset. Those numbers matter, but they do not tell the whole story.
The most comprehensive financial metric is net worth.
Net worth is everything you own minus everything you owe. It is the simplest snapshot of where you stand financially at a specific point in time. It does not tell the whole story of your financial life, but it provides context for almost every financial decision.
What Is Net Worth?
The formula is simple:
Assets – Liabilities = Net Worth
Assets include bank accounts, investment accounts, retirement accounts, real estate, business interests, and other property.
Liabilities include mortgages, credit cards, student loans, business debt, and other obligations.
Tracking net worth does not have to be complicated. It can be written on the back of an envelope once a year. It can be kept in a spreadsheet. Some families use Quicken. Higher-net-worth families may use QuickBooks or family office reporting.
The tool matters less than the habit.
Why Net Worth Matters More Than Income
Income can create a misleading sense of financial strength. A family earning a high income may still have little financial flexibility if their expenses, debt, and lifestyle absorb everything they make.
Consider Eric and Julia. They earn $1 million a year, but they also spend $1 million a year. They live in a $1 million house with a $1 million mortgage. Their income is high, but their net worth is effectively zero.
A family in that position may look affluent from the outside, but they meet our definition of poor. Their lifestyle is being supported by income, not wealth.
A more durable approach is to let income build net worth and then allow net worth to fund lifestyle.
Think Like a Small Business
We encourage families to borrow a simple idea from business accounting.
A business has an income statement and a balance sheet. The income statement shows what came in and what went out. The balance sheet shows what the business owns, what it owes, and what equity remains.
A family’s net worth statement is its balance sheet.
Not every family needs detailed monthly accounting. For some, that would be overkill. But knowing your net worth periodically can help inform decisions about investing, risk-taking, debt, giving, retirement, and lifestyle.
Let Net Worth Fund Your Lifestyle
It is common for families to set their lifestyle based on income. We see this when recent college graduates get their first job — income goes up, but so does spending.
When a promotion, bonus, or growth in the family business increases income, it is easy to let spending ratchet up as well.
A more useful framework is this: let your income fuel your net worth, and let your net worth help guide lifestyle.
That does not mean every family needs to live rigidly or deprive themselves. It means spending decisions become more thoughtful when viewed against the family’s full financial picture.
This is especially important in retirement planning. Retirement is not simply about replacing income. A family may be able to make work optional when their net worth can reasonably support their lifestyle over time.
The familiar 4% rule is one imperfect but useful expression of this idea. It connects spending to the portfolio or asset base supporting that spending. It is not bulletproof, but it points in the right direction: lifestyle may need to be evaluated in the context of net worth.
This can work both ways. Some families with low net worth — even with high income — may need to pull back on spending and allow their net worth to grow in order to build a stronger base of support for their lifestyle.
Other families with substantial net worth may be living far more cautiously than necessary. The number provides context.
The 0.01% Rule
The Wall Street Journal recently discussed Nick Maggiulli’s “0.01% rule,” which offers a simple way to think about small spending decisions.
The idea is that if a purchase is less than 0.01% of your net worth, it may not be financially significant enough to overthink.
For example, if someone has a $20 million net worth, 0.01% is $20,000. That does not mean every $20,000 purchase is automatically wise. It does mean the purchase is unlikely to meaningfully affect the family’s financial picture.
The same logic works in reverse. If someone has little or no net worth, small expenses may matter more.
Wealthy families might not need to worry over a $7 latte, but someone just starting out may want to avoid unnecessary small expenses.
Net Worth Helps Keep Perspective
Tracking net worth can also help during volatile markets. If one investment declines, the emotional reaction may be very different when viewed in isolation versus in the context of the full balance sheet.
The Dow Jones Industrial Average may have a bad day, quarter, or year. One account may be down. One asset may disappoint.
But if total net worth is stable or still rising, the planning decision may look different.
Net worth helps families avoid making decisions based solely on noise.
Income Is Not the Same as Wealth
While our definition of rich versus poor is based on net worth, it is important to understand that the government generally defines financial status by income. Tax policy usually focuses on what a person earns, not necessarily what they own.
A millionaire is not simply someone who earns $1 million or lives in a $1 million house. A millionaire is someone with $1 million of net worth.
A family can have high income and low net worth. Another family can have modest income and substantial wealth.
Net worth helps define who is rich and who is poor.
It is important to understand this distinction in financial planning, especially tax planning.
Start With One Number
If you want a clearer picture of your financial status, start by calculating your net worth.
List your assets. Subtract your liabilities. Write down the number. Then update it periodically — monthly, quarterly, or annually.
If your net worth is rising, you can see progress. If it is flat or declining, you can begin asking better questions:
Is the decline intentional?
Is it market-related?
Is lifestyle spending too high?
Is debt growing?
Are gifts, taxes, or charitable giving part of the explanation?
That one number will not answer every financial question, but it provides context for many other financial decisions.
Final Thoughts
If you would like help understanding your net worth, learning how to track it, or understanding how it fits into a comprehensive financial plan, please contact us and let’s have a conversation.