Role Of Net Worth Calculators In Financial Planning: Setting Milestones And Tracking Progress

Role Of Net Worth Calculators In Financial Planning: Setting Milestones And Tracking Progress

Net worth depicts one's financial health at a given point of time. It is different from income, which is the regular inflow of money from one's job, business or investments. A person’s net worth grows over time through asset accumulation, debt repayment and saving/investing a portion of income.

Rahul MUpdated: Wednesday, May 15, 2024, 12:25 PM IST
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New Delhi: Financial planning is crucial for achieving one's financial goals and securing a financially stable future. An important aspect of financial planning is regularly tracking net worth - the difference between total assets and total liabilities. Net worth calculators are online tools that help individuals easily calculate their net worth. Using net worth calculators at regular intervals enables setting financial milestones and monitoring progress. 

Understanding net worth 

An individual's or household's net worth is calculated by subtracting total liabilities or debts from total assets owned. Assets include cash, bank deposits, mutual funds, shares, real estate property, cars, jewelry and other valuables. Liabilities include home loans, personal loans, credit card dues, car loans and any other form of debt that is owed.

Net worth depicts one's financial health at a given point of time. It is different from income, which is the regular inflow of money from one's job, business or investments. A person’s net worth grows over time through asset accumulation, debt repayment and saving/investing a portion of income.
 
Benefits of tracking net worth

Monitoring net worth at periodic intervals provides several benefits for financial planning. 

It helps set targets for asset accumulation and debt reduction. One can target a certain net worth to be achieved by a certain age.

It allows measurement of financial progress over time. Are assets growing and liabilities reducing at a healthy pace as per plan?

Sudden changes in net worth act as red flags for issues that need intervention. Examples are overspending, poor returns on investments, or assets losing value.

It assists in wealth creation and asset allocation decisions. Surplus net worth can be channeled towards further investments.

It enables better planning for financial goals like children's education, retirement, etc. Future goals become easier to fund if net worth is sufficiently high.

It helps compare one's financial health vis-a-vis peers and industry benchmarks. This can motivate better money management.


Here’s how net worth calculators can help

Calculating net worth involves listing down all assets and their current values, estimating all liabilities and then aggregating both to arrive at the net worth figure. This can be a complex and tedious exercise if done manually. This is where online net worth calculators come in very handy. They simplify the entire process and provide the net worth calculation with just basic inputs from the user.

Net worth tracking for financial planning

Net worth calculators also enable better planning for important financial goals.

Retiring comfortably

Saving for children's higher education

Accumulating funds for a house purchase


This is how tracking net worth helps make these plans.

Progressively growing net worth provides the means to fund future goals. 

Risk profile of asset allocation can be adjusted based on the quantum of net worth and time horizon.

Surplus net worth can be channelized to suitable investments like mutual funds, stocks, debt funds to grow wealth for specific goals.

If net worth growth is slower than expected, alternative options can be considered early on - like a top-up education loan.


Conclusion

Net worth calculator is invaluable tool for personal finance management. They provide easy, convenient and reliable means to calculate net worth. Used proactively on a periodic basis, they help set financial milestones aligned to life stages. They enable tracking asset accumulation and debt reduction. Growth in net worth over time ensures preparedness for important financial goals. Net worth calculators provide key inputs and motivation to take necessary actions that can accelerate one's financial progress. Leveraging them appropriately facilitates comprehensive financial planning. 

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