It provides a benchmark about how well you are doing. Take a freshly-minted college graduate saddled with student loans. Their net worth is probably negative. They land a job that pays well. They buy a new car, loads of consumer items, maybe even a new home or condo.
Current income is enough to pay the bills, but that's about it.
Unless they've made a concerted effort to pay extra toward the student loans, they still have a negative net worth. In fact, the car and house have added to that negative picture. If they aren't salting away much money in savings and investing, their overall financial health isn't as sound as their regular income would make it appear. This article was produced by the Consumer Affairs Dept. of The Financial Planning Association and provided to you courtesy of Nigel B. Taylor, CFP, Santa Monica, California.