Here's Why My Net Worth Doesn't Matter Much to Me

If you have a good handle on your personal finances, you may be aware of how much money you have in your checking account and how much you have available in savings. You might also know what your typical monthly credit card balance amounts to.

But you may not really have a pulse on your net worth. And if you don't, hey, you're in good company, because neither do I.

This isn't to say that I'm totally clueless in that regard. I have a general sense of what my net worth looks like. But there's a reason I don't tend to get caught up in the specifics of my net worth. And you may want to take a similar approach.

What's net worth, anyway?

If you're not sure exactly what I mean by net worth, it's basically the total of your various assets minus your liabilities, or debts. As a basic example, let's say your only asset is a $10,000 savings account and your only debt is a $3,000 personal loan balance. That would leave you with a net worth of $7,000.

If you're curious as to what Americans' net worth looks like in general, data from the Federal Reserve Board found that American families have an average net worth of $1,063,700. However, the median net worth is only $192,900. And when you have a discrepancy like that, it tells you that $192,900 is more indicative of the typical household's situation.

Why net worth isn't important to me

Over time, I'd like my net worth to grow. On a year-to-year basis, or a month-to-month basis, it doesn't really matter to me at all.

See, much of my net worth is tied to assets that don't translate into spendable cash. As such, a higher net worth doesn't necessarily improve my quality of life.

I own a home, for example. And since buying my house about 14 years ago, the value of my home has increased by several hundred thousand dollars. 

That's great and all, but it doesn't help me because I'm not selling my house. I need to live in my house, so I can't just convert it to cash I can spend. (Granted, I could borrow against the equity I have in my home, but I don't like taking on debt, so that's generally not something I'd do unless dire circumstances were to warrant it.)

Similarly, I have a decent chunk of money socked away in a retirement account. But I can't touch that money until age 59 1/2 without facing an expensive penalty. And even if that penalty didn't exist, I need that money for retirement, which means I can't go dipping into my IRA today to pay for entertainment and vacations.

Not only that, but it's hard to get a solid read on my net worth because the value of my most substantial assets can change monthly. A big stock market fluctuation could cause my IRA balance to rise or fall by many thousands of dollars. Similarly, the value of my home could plunge by $20,000 or $30,000 this year if the housing market cools off. Or, it could rise by $20,000 or $30,000 if the market remains hot. That's why I don't spend a lot of time or energy focusing on my net worth.

What I focus on instead

Instead of worrying about my net worth bouncing around, I focus on making sure I have enough emergency savings, checking my credit card balances to make sure they're paid on time, and assessing my recurring bills to avoid wasting the money I work hard to earn. 

There's nothing wrong with trying to calculate your net worth once in a while. And there's nothing wrong with taking steps to grow your net worth over time, such as investing money you don't need right away or pursuing homeownership. 

But rather than fixate on your net worth, you may want to devote more time to making sure you're managing your current paycheck well and you're equipped to deal with financial emergencies that might arise. Similarly, check your credit card spending frequently during the month to make sure you're not going overboard. These are the day-to-day or week-to-week moves that can serve you well. Following up on your net worth that frequently may not do you very much good at all.