Knowing This Number is Much More Useful Than Tracking Your Net Worth

SAVING & SPENDING - FINANCIAL HEALTH
Your monthly investments could be a better indicator of your financial stability not only now but in the future.
Updated April 11, 2024
Fact checked
man thinking about money

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

While your net worth measures your current financial life, there are other things that may be a better indicator for tracking your finances both today and in the future.

For instance, you could have non-liquid assets that may be helpful later or you might discover that you’re not investing enough now to increase your net worth, making it hard to avoid money stress in the future.

Here are some other things you should focus on besides your net worth to get a better picture of your financial health.

The limits of knowing your net worth

roberjzm/Adobe woman talking to homeowner's insurer while inspecting kitchen ceiling

Net worth is the value of assets minus the debts you have. It could include retirement accounts, savings accounts, and equity you have in real estate or vehicles.

Though it’s common to include homes and vehicles in net worth calculations, they aren’t all that helpful considering they typically cost you money on a routine basis as opposed to putting money into your pocket like other types of investments.

What you should track instead

Syda Productions/Adobe happy couple with papers and calculator at home

One of the most important numbers you should consider instead of net worth is your contributions to your net worth, particularly how much you set aside each month to build your financial assets.

Sit down with a budget and find out how much extra money you can invest each month. This won’t just help bump up your current net worth, but your future net worth as well.

Why monthly investment contributions matter

Dmitry Lobanov/Adobe rich kid boy millionaire sits with a bundle of money

One of the most important things to consider when calculating monthly assets is compound interest. The longer you have money set aside in an investment, the more your interest will earn you.

This could be particularly helpful if you’re saving money for retirement. As you invest, the money you add to your accounts earns interest that can be reinvested over and over again until you’re ready to retire.

Be aware that it’s better to start investing early in order to take full advantage of compounding interest. However, it’s never too late to begin saving, and the best time to start investing is now regardless of your age.

Can you retire early? Take this quiz and find out.

How to maximize your monthly investments

Arthon/Adobe tree growing on piles of money

There are some ways you can start to get ahead now in order to benefit later on, whether you’re ready to retire or need money for a purchase like a home or another investment.

Match your 401(k) contribution

Nattakorn/Adobe hand's man putting money in jar for investment

If your employer offers matching funds for any 401(k) contributions, try to max out the amount of money you can invest to receive the matching funds. These funds could boost your retirement savings and help you build your monthly investments toward your retirement.

Remember to check on your 401(k) funds on a regular basis (at least annually) to see if you need to diversify your portfolio or rebalance your investments. You may want to move your money into investments that carry less risk as you get closer to retiring.

6 Brilliant Moves If You Make More Than $5,000/Month

Contribute to an IRA

Myvisuals/Adobe woman on chalkboard with different saving plans

An individual retirement account (IRA) is also a good way to invest in your retirement. But unlike a 401(k), an IRA isn’t attached to your employer.

Look into different types of IRAs that may be offered by financial institutions and research funds or other investments you can add to maximize your contributions.

Open a Roth IRA

LIGHTFIELD STUDIOS/Adobe  senior couple sitting at table with paperwork

You may also want to consider a Roth IRA, which allows you to contribute after-tax dollars into a retirement account. Using a Roth IRA this way gives you the ability to withdraw funds later without having to pay taxes on them.

There may be some income restrictions and other limits on contributions, so check with a financial planner or online brokerage account before opening and contributing to a Roth IRA.

Open a brokerage account

NINENII/Adobe  female trading stocks online

There are other ways to invest in the stock market besides putting money aside in a retirement account. Maybe you’re saving money for a down payment on a home, a big vacation, or just some extra spending cash.

You can use one of the best online brokerage accounts to invest in stocks, bonds, or other financial options to earn some extra money for your goals.

Pro tip: If you don’t know where to start, consider an index fund which is a basket of funds tracking a major index like the S&P; 500 or Dow Jones Industrial Average. These funds could offer you diversity as well as a steady return year over year.

Try other financial products

fizkes/Adobe broker consulting smiling millennial couple on property purchase

You may also want to check with your bank or another financial institution about other ways to save money.

Some of the top high-yield savings accounts can help you earn interest without carrying the risk of having money in the stock market. This may be a good option if you want less-risky investments to help supplement your Social Security as you get closer to retirement age.

Start an emergency fund

22091967/Adobe emergency fund jar with lock on it

You may want to open a savings account specifically to use as an emergency fund if needed. A pool of money you can tap into for a home repair emergency or unexpected health bills will prevent you from dipping into retirement accounts or other investments.

Pro tip: Your emergency fund should be in a liquid asset like a savings account and not tied up in something less liquid like a brokerage account. You’ll need to be able to access the money as soon as possible in an emergency without having to liquidate your assets.

Bottom line

Prostock-studio/Adobe guy using calculator and laptop computer

It’s a good idea to sit down and create a budget to get a clear picture of how much you can invest each month. Remember to take into account where you can save some money or what expenses you may have that need to be paid each month.

You should also create a retirement budget to estimate how much you might need to spend each month for everyday expenses or special purchases to avoid throwing money away in retirement.

Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

Want to learn how to make an extra $200?

Get proven ways to earn extra cash from your phone, computer, & more with Extra.

You will receive emails from FinanceBuzz.com. Unsubscribe at any time. Privacy Policy

  • Vetted side hustles
  • Exclusive offers to save money daily
  • Expert tips to help manage and escape debt