I believe that net worth is a better way to track how you are doing on your path to being financially independent. You should take the prior step to track your income and outgo but net worth is the most important in showing you where you stand financially.
You can have a very high income but not a high net worth. A person making $100,000. a year may have a net worth of only $20,000. A person making $50,000. a year may have a net worth of $500,000. or higher. It all depends on how much of that income you invest and don't spend.
Net worth is your assets minus your liabilities. Here is a calculator for you to use to track your net worth:
Net Worth Calculator
I track our net worth on the first day of each month. That lets me know if we are going in the right direction to reach our goals. Yes, even though we retired early, we still have goals and continue to save from 50 - 70% of the income that we have available to us each month. Our net worth over the years has consisted of 401K investments, yearly salary savings, a real estate investment, lease income from property we own, a pension, Social Security, stock and bond investments, savings and money market accounts, CD's, etc. depending on which stage of life we were in. All of these helped to boost our net worth. Today we are in the position of never having to work again.
Was it easy? No! But we made it easier by having automatic savings go each month into different investments. We also always kept our eye on our goals.
So if you have never tracked your net worth, start doing it this month. Then every month, you can do a quick calculation and see if your net worth is rising along your path to financial independence. Even if you have too much debt and your net worth is negative, you can turn that around by paying that debt down.
The next post will connect all of the things that I have written about.