The Annual Calculation Key To Your Financial Health

Every year when the calendar rolls over, Americans across the country start thinking about their tax liabilities — while hoping they'll be entitled to a sizable tax refund. Plenty of standard financial tasks take place around this new year season. Ending a year financially strong involves finalizing contributions to retirement accounts and rebalancing portfolios, but it also provides a great opportunity to make one additional calculation.

Understanding your net worth is a good idea at any time of the year. This is a financial accounting of all your assets and liabilities (with certain logistical exceptions). Taking stock of where you stand financially through the lens of your net worth can be an illuminating experience. Doing it every year around the same time offers an even more potent window into your overall financial health for a few key reasons, too. Here's a rundown of how to explore your net worth, and why you might want to sum up your fiscal life on an annual basis.

Net worth isn't the only means of exploring how you stack up financially, but it is a comprehensive accounting of great swaths of your monetary lifestyle. This makes it a great tool to use when planning your financial future, both short and long term. Most Americans hope to retire one day, and a solid plan of attack is crucial to making this happen. It's easy to get hung up on the amount you'll hope to save to fund your retirement, but if you amass a grand war chest of assets only to see those resources pitted against a heap of liabilities, you won't have realistically made much ground on your quest to retire successfully.

Retiring with a fully funded investment portfolio is great, but if your fixed income is forced to continue managing long lasting mortgage payments and one or more repayment obligations on auto financing — not to mention ongoing credit card bills — then it may not last nearly as long as you would hope. Building your asset pool is key to long-term success, but equally important is a reduction in liabilities that drain your resources. Calculating your net worth annually helps you understand where your vulnerabilities lie, allowing you to craft a plan to deal with them ahead of major life changes or over long trending sub-strategies within your larger financial plan.

Performing this check annually isn't just a way to instill a habit into your financial planning approach. Any time you can perform a deep dive into your financial health is a good time to go exploring, but working through these calculations at the same time each year produces an additional benefit. Naturally, the information gleaned from this project is critical to making more comprehensive plans for your financial future. But the trend that connects your annual financial status from one year to the next is just as important to understand.

Significant change and plenty of financial stress is unfortunately commonplace among consumers in the modern marketplace. No longer is the average worker getting married at twenty-something and moving into their first home shortly after. Today, median marriage ages are 28.6 for women and 30.5 for men, while first-time homebuyers have aged up to a whopping 38. Americans are now renting for over twice as long as they were before buying in the 1970s, and an increasing volume of first-timers are single. These changes in fiscal norms mean that tracking net worth changes is also more important than ever. With an increase in the number of barriers standing between the average consumer and things like a stable place to call home and solid pension funding, keeping track of how your debts are moving in relation to your assets can help you avoid catastrophe before it arrives to meet you. Multiple years of diminishing net worth can signal a larger problem that needs addressing, while growth — even slight — can signal that you're moving toward your goals.