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How to track your net worth

It's the best way to stay on top of your financial situation.

By Karen Datko Jan 26, 2010 2:02PM

This post comes from Jim Wang at partner blog Bargaineering.

 

When you were in school, chances are you knew what you needed on each test to get an A, B, or C (or avoid an F). At work, you have project deadlines to meet and performance criteria to fulfill. When it comes to your finances, there isn’t a convenient, single number you can use to track your progress.

 

In school, there was your GPA. In personal finance, you can’t just look at your account balances because they don’t give you the whole picture.

 

That’s where measuring and tracking your net worth can come in handy. Every month I record a snapshot of our family’s net worth in a simple Excel spreadsheet.

 

By definition, net worth is your total assets minus your total liabilities. Examples of assets are cash, investments and real estate. Examples of liabilities are debts like credit card, car loan, student loan, and mortgages. Nothing fancy there, just some simple math.

 

The value in doing this each month is that it gives us a “state of the family finances” you really can’t get in looking at any other number. You might have savings goals -- like X dollars for a home down payment -- or budgeting goals -- don’t spend more than $250 on restaurants this month -- but nothing that gives you guidance across all of your goals quite like your net worth.

Consistency trumps methodology

I recommend ignoring what you read about what to count and what to ignore for your net worth equation. Come up with an equation that works for you and your family.

 

We don’t include cars in our net worth, but maybe you want to include your car(s). We keep our home value static (it’s the appraisal value) each month whereas you might want to adjust it based on comparable sales or some other metric. In the end, you want to keep your methods consistent from month to month because it’s the difference that matters, not the final number (so much).

In addition to giving you a progress report each time you update it (we do it once a month), it also gives you the opportunity to have a financial check-in with your family. When you discuss the finances, take whatever notes you have and enter them into the place you track your finances.

  • Big increase because of a bonus? Put a note.
  • Big drop because you had to pay taxes? Put a note.
  • No change but you sold some stock for gains? Put a note.

In a few months to a year (or more), when you go back to review your progress, these notes will be important to add some commentary to otherwise boring numbers.

 

How we track net worth

How we track net worth is pretty simple: We add up all of our assets and subtract our liabilities. Thanks and have a great day! 

 

Just kidding. Not quite done yet. While those are the basics, we do a few different things and play a few statistics games when it comes to coding each of our accounts.

 

Here are some the things we do:

  • For our assets, we categories them as liquid (cash, CDs, savings, checking), investment (taxable brokerage), federal (bonds), and retirement (IRAs, 401ks). We feel that separating them by how easy and painless (tax- and fee-wise) it is to access the funds is valuable.
  • We don’t track our credit card debt because we pay it off each month. We have only two other liabilities --student loan debt and a mortgage -- and they get their own categories.
  • We do not include our car’s value because it doesn’t add anything to our understanding of net worth. We paid off both before we started tracking our net worth. If we had loans, we’d keep the Kelley Blue Book private sale value on after the loans are paid off just to keep continuity.
  • We include our home’s appraisal value to help offset the mortgage. Much like a car loan needing a car to give it some perspective, we keep the appraisal value.

In terms of statistics, we sum up all the categories (liabilities, plus our various types of assets) into individual columns and then sum them into a total value (subtracting liabilities). This gives us a month-to-month snapshot of our total net worth as well as the changes in our various categories each month.

We include notes in each cell whenever there’s something notable. For example, we recently rolled over my wife’s old 401k to Vanguard and noted this in the various columns. In a year or so, when we go back to look at 2009, we’ll know why our Vanguard account suddenly surged midyear for no reason.

What are some tips and tricks you’ve used in tracking your net worth, plus techniques you’ve used to achieve your goals sooner or just give you the opportunity to track them better? I’d love to hear about the things you’ve done so we can improve our process.

 

Related reading at Bargaineering:

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