debts

Does Your Net Worth Even Matter?

Matt Bell — Wed, 17 May 2017 08:00:11 +0000

Do you know your net worth? That's how much is left after subtracting your liabilities from the total value of your cash and assets.

At first glance, figuring out how much you're worth may seem pointless. You're probably not going to bump Warren Buffett or Bill Gates from their spots on any "World's Wealthiest People" list anytime soon. But no matter how much you earn, knowing your net worth is important.

Here are three reasons why monitoring your net worth can help you manage money better. (See also: 10 Ways to Increase Your Net Worth This Year)

1. Your net worth doesn't lie

In our culture, it's easy to convince ourselves that we're doing better with money than we actually are. We can finance nice cars, pay for the latest fashions with plastic, and even "buy" a more expensive home than we can realistically afford. But our net worth tells it like it is, and that can be a very helpful financial wake-up call.

In the personal finance classic, The Millionaire Next Door, authors Thomas Stanley and William Danko draw an important distinction between people who look wealthy but aren't (they call them "Big Hat, No Cattle"), and those who don't look wealthy but are (where the title of their book came from). If you're going to build wealth, it's far better to be in the latter group.

The concept of being unassumingly wealthy is also known as "stealth wealth," and it's a lifestyle worth striving for. People with "stealth wealth" maintain a high net worth by avoiding dumping their cash into shallow, depreciative purchases. Their modest approach to money management allows them to achieve such dreams as early retirement, entrepreneurship, traveling the world, and more.

After calculating your net worth, ask yourself: Do I look wealthier than I am, or am I wealthier than I look?

2. Your net worth shows whether you're making progress

To be sure, there are other ways to define your life and determine whether you're moving forward or backward. Tallying your net worth each year, however, and monitoring the trend that develops can be very helpful. If you're going to build a nest egg large enough to support your family in your later years, you need that trend to be moving in an upward direction.

Earning more each year and increasing your standard of living may make you feel like you're getting ahead, but an increase in your net worth will show if you actually are.

Of course, there will be occasional down years. The recession of 2007 to 2009 erased a lot of wealth, but those who didn't panic eventually recovered — and then some.

3. Your net worth helps you pinpoint financial issues

Each time you calculate your net worth (a natural time to do so is at the end of each year), don't just retain the bottom line number. Keep the components.

On the asset side, track the value of your home (Zillow will give you an estimate), your retirement savings, other savings, the value of your car(s), and other assets. Then look at changes within each asset.

With our household's retirement accounts, I don't just record the balance. I also record how much we contributed each year and how much our investments earned. How much we contribute is much more under our control than the returns we earn. I want to at least make sure we're doing our part. The earnings side is important as well. If you see year after year of meager returns, it's probably time to re-evaluate your investing process.

On the liabilities side, track how much you owe on your house and other debts, such as vehicle and student loans. This annual exercise will provide a helpful reminder to perhaps put more focus on getting out of debt or make sure you're on track to be mortgage-free at least by the time you retire.

The big picture

To a great degree, net worth is an "internal" metric. It's mostly about how you're doing now compared to how you were doing last year and the year before.

If you'd like more context, The Millionaire Next Door has an interesting way of defining "wealthy." Whereas many people think of someone who has a net worth of $1 million or more as wealthy, Stanley and Danko's definition created more of a level playing field for people across the spectra of age and income: multiply your age times your annual pretax household income, divide by 10, and then subtract any inherited wealth. That, they said, is what your net worth should be.

If you have significantly more than that, you have a low-consumption, high-wealth-building lifestyle and you're considered wealthy for someone of your age and income. If your net worth is significantly less than that, you're probably consuming too much of your income and investing too little. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Ways Retirees Can Build Credit

Dan Rafter — Wed, 26 Apr 2017 20:00:10 +0000

You might think that once you reach retirement, your credit score is just one of those things you get to stop worrying about. While it's true that most retirees won't be applying for mortgages, it's not true that you don't need to maintain a decent credit score. What if you want to apply for a car loan? What about credit cards? You certainly won't get the lowest interest rates and best rewards programs possible without a good credit score to back you up.

A low credit score can also hurt you if you want to downsize to an apartment, or even move into a senior living facility. You might need a solid credit score to qualify.

Why it's hard for retirees to build credit

According to FICO, to have a credit score, you must have at least one credit account that is at least six months old. You must also have at least one account that has been updated by a creditor or lender during the last six months.

If you aren't paying a mortgage, paying off an auto loan, or using credit cards, you might not meet any of these requirements. This might lead to you becoming what FICO calls an "unscorable," a consumer who has no credit score at all.

Fortunately, there are ways for retirees to continue building credit. They require the same good financial habits you've been practicing before retirement.

Use the credit cards you have

You might prefer paying for items in cash. Instead, make small purchases throughout the month with your credit card. If you pay off your entire card balance each month, you'll continue to boost your credit score. (See also: How to Use Credit Cards to Improve Your Credit Score

Make sure that you don't charge more than you can pay off by the due date. If you do, you'll be stuck paying interest.

Never pay late. If you pay your credit card 30 days or more late, your card provider will report your payment as late to the national credit bureaus of TransUnion, Experian, and Equifax. This will cause your credit score to plummet. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Keep unused credit card accounts open

You might have a credit card that you never use, but don't close it. Having open credit card accounts helps your credit score, thanks to something called a credit utilization ratio.

This ratio measures your credit card balances against your total available credit limits, and it accounts for 30 percent of your score. Using too much of your available credit will cause your score to drop, while using a modest amount will help it rise. It's typically recommended that you not let debt tip this ratio beyond 30 percent. If you have a paid-off credit card that isn't getting much use, closing it will lower your overall available credit limit and your utilization ratio will then increase. (See also: How to Close a Credit Card Without Dinging Your Credit Score)

So, keep those unused cards tucked in your wallet. Having that extra credit that you're not using will provide a boost to your score.

Apply for a secured credit card

If you no longer have any credit cards, and you've become an unscorable, you can still build your credit. Your first step should be applying for a secured credit card.

You don't need a credit score to qualify for one of these cards. Their line of credit is based on the amount of money you deposit into an account with the financial institution issuing the card. (See also: How to Pick the Best Secured Credit Card)

If you deposit $1,000 into an account, you can then charge up to $1,000 on your secured credit card. Every time you use your secured card and pay off these charges on time, you'll get a boost to your credit score. Do this long enough, and you can build a score that's high enough to qualify for a traditional credit card.

Again, take the same precautions you'd take with a traditional credit card. Pay your bill on time each month, and never charge more than you can afford to pay in full by your due date.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Things You Should Know About Joint Checking Accounts

Emily Guy Birken — Mon, 17 Apr 2017 08:30:13 +0000

Joint checking accounts offer convenient money management for many different types of relationships, including married and cohabiting couples and adult children and their parents.

But the convenience of joint checking accounts potentially comes with a cost that families need to consider before signing up. Here are six issues you need to think through before you open a joint checking account with a spouse, a significant other, an adult child, or a parent.

1. There is no accountability for withdrawals

Generally, couples tend to open joint accounts because they are sharing a home and expenses. That means that it's in their best interests to be responsible with the money, since it will affect them both if the rent money is spent on a weekend in Vegas. However, if one person is unreliable with money, or planning to leave the relationship suddenly, a joint account can be dangerous for the other account holder.

This issue can be more difficult when the two account holders are parent and child. Often, an adult child will request that they be added to their elderly parents' checking account to help protect dear old Mom or Dad. They can help pay bills, and make sure that there is no fraudulent activity on the account. The problem is that both account holders have every right to withdraw money from the account — which an unscrupulous adult child could take advantage of.

2. Joint accounts are vulnerable to the financial mistakes of both owners

If either account owner has unpaid debts that go into collection, the creditor has every right to use the joint account to satisfy those debts. This means you might potentially find your joint checking account completely drained in order to pay off debts you are unaware that your co-owner has run up.

In addition, if there is a legal judgment against either account owner, the money in the joint account could be considered part of the assets awarded in the judgment. For instance, if Jane is sued because she crashed into a bus, then the assets in the joint account she holds with her elderly father are considered part of Jane's assets in terms of the lawsuit — even if the account was originally solely in Dad's name.

3. A joint account could hurt your credit

Although your spouse or child's credit rating can't ding your score, the way they handle their money can hurt your credit if you share a joint account with them. Since creditors are required to report joint account information, an account holder who struggles with debt and paying bills on time will negatively affect the co-owner's credit rating — unless and until the money behavior improves.

4. A joint account can affect eligibility for financial assistance

If either account owner needs to qualify for any kind of financial assistance, from financial aid for college to Medicaid, the money in a jointly held account is included in the eligibility calculations for the financial aid. That means you might end up forfeiting your ability to qualify for the financial assistance if your account co-owner holds more cash in the account than you would as a sole account owner.

5. Your co-owner can close the account without your permission

Certain banks require consent from both parties to close a joint checking account, but most do not. Typically, state laws dictate that any person who can write checks on the account can close it, at any time, regardless if their co-owner is present or even aware. The benefit to this is if one party relocates, passes away, or otherwise becomes incapacitated, there are very few issues the remaining co-owner must go through to close the account. The danger, however, lies in the potential for one co-owner to simply deplete the funds, close the account, and disappear. Always make sure you're sharing a checking account with someone you trust.

6. Parent/child joint accounts can have estate implications

A joint account holder retains sole control of the money in the account in the event of the co-owner's death. In the case of spouses or other cohabiting couples, this kind of financial transfer in case of death is not a problem. However, if the account owners are a parent and child, the issue is much more complicated.

That's because the money in the checking account stays with the surviving account holder, bypassing whatever the deceased account holder may have put in their will. For instance, Loretta has three children and has specified in her will that her assets will be distributed evenly among them. But Loretta has a sizable joint account with her son Jason, and upon her death the money in that account will be solely under his control. Unless Jason feels like splitting up the money in the account three ways, his siblings are not going to see that portion of their inheritance.

Merge with caution

While joint checking accounts offer convenience to couples and parent/child relationships, they also come with a number of potential headaches. Make sure you know what you are signing up for before you and your potential co-account owner start picking out your personalized checks.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Credit Cards That Won't Go Away

Damian Davila — Tue, 21 Mar 2017 10:31:11 +0000

The idea of evaluating a person's creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn't make an appearance until the 1950s, and the FICO score as we know it today wasn't introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let's dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don't shop there anymore, and you're thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you're reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you're keeping on top of any applicable annual fees and they're not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

The amount you owe lenders accounts for 30 percent of your FICO score. The smaller your credit utilization ratio (the amount of debt you hold compared to your total available credit), the better your score. This means if you can avoid carrying a balance, you should do so. However, responsible use of a credit card allows you to buy big ticket items, such as a kitchen appliance or laptop, that you can't pay off all at once. So, sometimes you will have to carry a credit card balance. When you do, credit lenders recommend that you keep your credit utilization ratio below 30 percent -- the lower, the better. Keeping a low credit utilization ratio demonstrates that you're more likely to be able repay your debts, positively affecting your credit score.

What to do: Pay back your credit card balance in full every month as much as possible. When you're not able to do so, then seek to maintain a debt-to-credit ratio below 30 percent across all your credit card debts. (See also: How to Use Credit Cards to Improve Your Credit Score)

Myth #3: Paying the cellphone bill builds your score

Since some cellphone carriers may run a credit check to decide whether or not to approve you for financing, you may think that those cellphone carriers report your on-time payment history back to the credit bureaus. Payments to service companies, such as cellphone carriers, electricity providers, and natural gas providers, aren't reported back to the credit bureaus. (However, Experian does provide eligible renters the option to make their rent payments count toward their credit history.)

What to do: Don't sign up for a cellphone plan thinking you'll get a boost in your credit score. Do continue paying your cellphone bill (and all other bills!) regularly on-time. If your cellphone account were to be sent to collections, then the cellphone company would surely report that info to all credit bureaus.

Myth #4: Choosing a popular card will benefit you

A 2016 study of 20,206 credit card users by J.D. Power found that at least one in five credit card holders have a card which has fees or rewards not aligned with their actual purchase habits.

In the hunt for bigger and better rewards, 20 percent of credit card holders end up with a card that doesn't match their needs and would be better served by a different rewards card, or even one without any without rewards at all and a lower interest rate. Here's an example from the study: One of the reasons that 44 percent of airline co-branded card holders appear to have the wrong card is that those individuals aren't spending at least the necessary $500 per month to gain enough rewards to cover the average annual fee of $75. (See also: Cash Back vs Travel Rewards: Pick the Right Credit Card for You)

What to do: You don't just want to follow the crowd when choosing a credit card. Stack up your current credit card against others and figure whether or not it's time to find a new card more suitable to your lifestyle. Check out our guides on how cash back cards really work and choosing the best travel rewards credit card to find the card that fits your lifestyle.

Myth #5: Believing there's only one credit score

That free credit score on your credit card statement may not be the same one used by a lending officer reviewing your application for a mortgage or car loan. Did you know that there more than 50 different types of FICO scores? Lenders have several options to choose from depending on their industry and preferred credit reporting agency.

What to do: If you get a free credit score through your card, check with the card issuer whether or not that score is a FICO score and what type of FICO score it is. This will help you know whether or not you can do an apples-to-apples comparison with the one used by your lender. Also, inquire with your lender if they can give you a target range for your loan to be approved. (See also: FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?)

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Questions to Ask Before Getting a Credit Increase

Dan Rafter — Wed, 15 Mar 2017 10:00:11 +0000

Feeling penned in by the low credit limits on your credit card? You might be able to boost your credit limit to a higher amount. Often, all it takes is a single call to your card provider. The bigger question, though, is whether you're financially prepared for a higher limit.

Your credit card providers will always set a credit limit on your cards, the maximum amount you can borrow. If you have a short credit history or a low FICO credit score, your credit limits might be low ones, sometimes under $1,000. If you have a long credit history and high scores, your limit might be $10,000, $20,000, or more.

How do know if you're ready for the financial responsibility of a higher credit limit? Here are some questions to ask yourself.

Do You Pay Your Credit Card Bill Late?

Do you pay your credit card bills by their due dates every single month? Or have you missed payments in the past? If it's the latter, you might want to hold off on requesting a higher credit limit.

Paying your credit cards 30 days or more late will cause your FICO score to drop by 100 points or more. Your credit card provider will also charge you a penalty, and your card's interest rate might soar. If you have a higher credit limit and a high balance, an interest rate spike could cost you quite a bit in extra interest payments.

Having a history of late payments will also give your credit card provider pause; the financial institution might not want to boost your limit if you don't always pay your bill on time.

Do You Carry a Balance on Your Card?

The smart way to use a credit card is to pay off your balance in full each month. This way, you boost your credit score by making on-time payments, and you won't get hit by the high interest that is often attached to credit card debt.

But what if you never pay your balance off in full? What if you roll your credit card debt over from month to month, watching it grow each 30 days as you do so?

If that describes you, don't worry about increasing your credit limit. Instead, focus on paying off your credit card debt in full. It's easy to let this debt get out of control because it tends to grow so quickly. You don't want to waste your money paying off interest each month.

If you think you need a higher credit limit to manage your bills, the better thing to do is to stop and assess your situation. A higher credit limit might save you for a few months, but you'll end up even worse off due to the high interest debt that you're accruing while your financial situation continues to spiral out of control. Make the tough cuts in your spending and create your debt payment plan.

Have You Maxed Out the Limits on Your Cards?

You never want to hit the maximum credit limit on your credit cards. If you've already done this on other credit cards, it's a sign that you need to get your spending under control, even if your credit card limits are relatively low ones.

Asking for more credit is not the right solution to maxing out your credit cards. The better move is to stop charging and start paying down those balances. Don't even think about asking for more credit until you pay off your credit card debt in full.

If instead you find you're bumping into your maximum even though you're able to pay it off each month (for example, you're trying to put your regular expenses on your card that you've been paying with cash or debit but there isn't enough credit available), that would be a good case for you to make in asking for a higher limit.

Do You Miss Other Bill Payments?

Are you constantly struggling to pay your auto, mortgage, or student loans on time? If so, you might consider higher credit limits to be a solution. After all, if you can charge more purchases each month, you might free up more cash to put toward those other bills.

This, though, is flawed thinking. If you're struggling to pay your monthly bills, you either don't make enough money, or you're spending too much. The better solution is to draft a realistic household budget showing how much money you're spending each month and how much you're earning. Armed with these numbers, you can then change your spending habits, make the move to a more affordable house or apartment, or search for a side job to bring in more income. (See also: 15 Ways to Make Money Outside Your Day Job)

Simply asking for more wiggle room on your credit cards is not addressing your money struggles. That's trying to avoid them.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Much Personal Finance Info Should You Share?

Dr Penny Pincher — Tue, 27 Sep 2016 09:00:07 +0000

Money is one of those topics that is not often discussed freely. In fact, it is common for people to disguise how much money they really have.

But then there are a few people who are happy to say exactly how much money they make without holding anything back. Some people even post their income and net worth updates on the Internet every month! Is there a benefit to freely sharing personal finance information?

What Can Go Wrong When Sharing Too Much About Your Finances

There are some good reasons people tend to avoid disclosing details when talking about money. Much like the usual sensitive topics of religion and politics, open conversations about money can result in friction and even damaged relationships. If you reveal how much money — or debt — you really have, you can make people uncomfortable or even lose friends.

People have a strong sense of fairness about money, and sharing financial details can highlight inequity and cause hard feelings: "Why does that person make more than me when I work harder?" Sensitivity about salary fairness is accentuated among people who work for the same employer.

When you reveal your financial details, you may unintentionally hurt someone's feelings and sense of self-worth. Let's say that in a moment of truthfulness, you decide to reveal how much you make to a close friend. Imagine how disappointed your friend would feel if he/she makes a lot less than you. On the other hand, imagine your dismay if your friend surprises you by revealing that she makes a lot more than you. Discussing your income can spark feelings of dissatisfaction that can last for a long time.

Money can divide people into "us" versus "them." The Occupy Wall Street movement with dividing lines drawn at the 99% versus the 1% is a dramatic example of this. It can be hard to relate to someone if you think they are in a different economic situation and that they do not face the same problems and issues that you are dealing with. Imagine if you suddenly learned your friend who you see as a peer makes twice as much income as you. This may impact your relationship since you know your friend has options and financial resources that are not available to you. Your friendships may be stronger if you do not know how much your money your friends make.

If you reveal that you have a lot of debt and/or little savings, others may think that you are not competent with money and may assume that you are not competent at other things as well. Some people feel that borrowing money to buy things you don't really need is irresponsible, especially when they are forgoing such purchases in order to pay down debt and achieve financial independence. Discussing money freely may bring up differences in philosophy about saving and spending that can make it harder for people to relate to each other.

Once you reveal personal finance details, it is impossible to put the toothpaste back in the tube. Once your secret is out, your financial privacy has been lost and there is no way to get it back.

Why Do Some People Reveal Everything?

Even with all of the downsides to revealing financial details, some people are eager to share full details of their personal finances. Why?

Some people use "full financial disclosure" as a way to keep themselves accountable and motivated to improve their financial situation. If I had to publish my income and net worth every month, I can see how this would make me focus on getting the numbers to look as good as possible. Plus, I wouldn't want to have to explain any embarrassing purchases or debt. Publishing financial information to help stay on track is sort of like participating a weight loss program where you share a list of everything you eat with your group. You are less likely to slip up if you know you will have to share your setbacks with the world.

Some people share their financial details to get attention — and money. Personal finance bloggers know that sharing their income and financial details publicly can generate traffic to their blog. People are curious to see how much money other people make and how they spend it. I find it fascinating to look at other people's expenses so I can look for areas where I could improve my own budget. Some personal finance blogs are set up with a stated monetary goal and readers can track the blogger's progress toward the goal over time. Sharing intimate financial details on a blog helps build a following which generates income from advertising.

Another benefit of full disclosure is that you don't have to worry about keeping secrets. You can speak freely about money without worrying about something slipping out. If you reveal your financial details to others, they are more likely to share their details with you. You might learn lessons from their experience that you can use to improve your own finances.

How Much Should You Share?

How much personal finance information should you share? The right answer for you depends on your comfort level with your financial situation and what you hope to accomplish by sharing. I see little benefit to sharing my personal finance information and lots of potential drawbacks. I could always change my mind and decide to share later, but for now I am keeping my personal finances personal.

One of the biggest problems with sharing personal finance details is that once you share, your information is out and there is no way to get it back. You won't be able to get people to forget that number if you change your mind later and regret sharing it.

In the end, your finances matter much more to you and your family than to anyone else. Others may be curious, but your money situation doesn't directly impact anyone outside your family very much. Most people have more to lose than to gain by freely sharing their financial details.

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How High Is Your Score on the Most Important Measure of Wealth?

Kentin Waits — Thu, 23 Apr 2015 09:00:06 +0000

Net worth just might be the king of personal financial calculations and the most important scorecard in the game of wealth-building. By tallying total assets minus liabilities (or debts), your resulting net worth provides you with a quick and accurate snapshot of how you're doing financially. If you've never taken the time to understand and calculate your net worth, get started today. In the meantime, test your net worth IQ by answering these six questions.

1. Which of the following is considered an asset?

A. Your emergency fund.

B. Your used car.

C. The equity in your home.

D. The collection of rare coins you inherited from your grandfather.

E. All of the above.

The correct answer is E. All of these items are assets and contribute to a person's net worth.

2. Maggie pays her credit card balance in full each month. Her only debt is federal student loans. Should these loans be factored into her net worth calculations?

A. Yes. The balance of what she owes should be subtracted from her assets.

B. No. Student loans are considered "good debt" because they're an investment in Maggie's future earning potential.

C. Impossible to answer. Every person's situation is different.

The correct answer is A. Debt is debt and should always be part of accurate net worth calculations.

3. Adam is 26 and has a vested 401(k) balance of $32,000.00. Since he can't access these funds penalty-free before the age of 59.5, should they be considered part of his net worth?

A. Yes. The balance is still considered an asset regardless of when he can access it penalty-free.

B. No. When figuring his net worth, Adam should only include assets he could immediately access penalty-free.

C. Adam shouldn't include pre-tax assets in his net worth.

The correct answer is A. The value of a 401(k) is definitely considered an asset.

4. Leo has a whole life insurance policy. The policy pays $25,000.00 in the event of his death and has a current cash value of $900.00. Which figure should Leo use in his net worth calculation?

A. The full $25,000.00 value.

B. Only the cash value of $900.00.

C. Neither. Most life insurance policies are not considered assets.

The correct answer is B. Only the $900.00 cash value is Leo's asset. If the policy is in good standing upon his death, the $25,000.00 will be payable to his beneficiary.

5. Fill in the blank: Though there's no universal net worth target, many financial advisors suggest that a person's net worth should be ____ times his annual spending amount by age 72.

A. 10

B. 15

C. At least 20

The correct answer is C. With this approach, increasing age, income, spending, and saving targets keep pace with each other to ensure your net worth can maintain your lifestyle throughout retirement.

6. Aimee has more debt than assets. How can she overcome her negative net worth?

A. Increase her earnings and look for ways to save more money.

B. Repay her student loans as quickly as possible.

C. Actively increase the value of her home, while reducing her mortgage balance.

D. Actively avoid consumer debt.

E. All of the above.

The correct answer is E. Each of these approaches could help Aimee overcome her negative net worth.

That's it! Pencils down, please. Did any answer trip you up or surprise you?

Remember, as you begin to understand your net worth and track its growth, focus on the big picture. Monitoring things too closely is like getting on the scale every day when you're trying to lose weight — the information is skewed by dozens of temporary factors that provide almost no valuable insight.

Reviewing your net worth quarterly or biannually will give you much clearer picture. Look for upward trends and make sure that any debts you incur are investments that will help your net worth trend up in the mid and long-term (i.e., buying a house or pursuing a degree that will increase your earning potential).

Do you track your net worth regularly? What decisions, investments, or life events have boosted your net worth the most?

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: