You’ve probably experienced how much more real something is when you’re seeing it for yourself instead of just knowing about it by reading about it or seeing pictures of it. It sure works with the Grand Canyon. My kids were certainly more impressed by the real thing than they were with the pictures they saw before they went to Arizona.
Of course, I’ve known for many years that my Net Worth is:
- The Sum of all Assets
(mostly the total value of all my investment and savings accounts and the value of my house; however, cars, furniture, and other valuable possessions should also be included but in my case these are of relatively little value)
Minus
- The Total of all Debts
(my home mortgage [more than zero] and any student loans, car loans, etc. [zero] and credit card debt [close to zero and paid in full at least once per month]).
Until recently I had never actually calculated my exact net worth. I had only done some very quick estimates. Years ago, I knew my net worth was negative, because the mortgage was large and was roughly equal to what my house was worth, my investments and savings were small, and unfortunately I had more debt on a credit card than I could pay off in a month. (Please learn from my mistake; never allow that to happen.) I paid off the credit cards. Gradually the large mortgage became smaller and my house grew in value along with my savings and investments, such that for years I knew that my net worth is a nice-sized positive number, but still it was only a rounded, vague estimate that I calculated in my head.
Since I started using one of the on-line saving and spending trackers (mint.com in my case; there are other similar services), my net worth has been much more precisely fixed in my mind. Whenever I want to see it, there it is: all my assets, all my debts, and the net total.
One effect of this is that it makes me think even more than before about how important is is to pay off that mortgage. Because now I see more clearly that my net worth comes from both the assets (which I want to increase) and the debts (which I must decrease).
This seems obvious, I guess. Like I said, I always “knew” that’s how it worked. But actually seeing it frequently focuses it in my mind.
Before I started looking at my net worth this way, when I paid my mortgage, I just saw money leaving my checking account, which is the “money gone” phenomena that occurs whenever I buy anything. Now, when I pay the mortgage, I see the money leave my checking account (which is the “Cash” in the screenshot image), but because going towards paying off debt, it decreases my assets and also decreases my debt at the same time — so there is no effect on my net worth. On the other hand, normal spending (spending for consumption, not investing) just decreases my net worth, and that’s it. All that happens when I spend money is some amount gets subtracted from “Cash” but nothing happens to my debt. Paying off the mortgage is different: it both reduces the amount of cash I have and at the same time it also reduces the amount of debt I owe. Seeing that happen — even if it’s only numbers in a little box all made of pixels drawn on a computer screen — motivates me and makes me want to do even more to decrease that debt and increase my net worth.
(Continued … Year II)
