It’s less about what you have, and more about what you will have.

Years ago, I was landed in a sticky situation where I was out a job and stuck with a bunch of recurring bills. Luckily, I had a decent amount of money saved up, but I knew it’d be irresponsible to just go on living like normal while drawing everything out of my savings. So, I ran some calculations to determine a “time limit” of sorts to let me know how long I could conceivably live off my savings before I’d officially be in a dire financial situation. This, in turn, gave me a deadline of sorts to find new work. It was a very motivating statistic, and thankfully, I managed to find work before things dried up.

The reason I bring up this story is to stress the importance of monitoring your net worth, not just as it is right now, but how it will be in the near future. Planning for the future is obviously one of the most basic of basic tenets of personal finance, but doing that becomes much easier when you have hard statistics to rely on rather than just vague assumptions.

I plan out my expenses in a three-step process. Step one is to add my current savings together with my assumed annual income from my current work (assuming I have any). Step two is to add up any regular recurring expenses. Power bills, insurance bills, subscription fees, and anything else that draws from my funds at regular intervals are added up and subtracted from the first statistic. Finally, step three is to make a list of potential expenses, stuff that doesn’t happen all the time but can make a notable dent in your finances whenever they do. This could be something like car and home maintenance, replacing clothes, or sudden medical expenses. This total is kept separate from the other total.

These two totals show how much money you expect to have in a year’s time, and how well that amount could potentially hold up against any sudden, unexpected expenses. If those unexpected expenses overtake your savings and earnings, you might want to consider some changes in budgeting.