Almost two years ago I started tracking our net worth. I had seen many of my blogging friends track their net worth from month to month, and began to realize how beneficial it is to track. For those of you who aren’t currently tracking your net worth, odds are you are not doing it for one of two reasons:
- You don’t understand the benefits (or no one has told you it’s beneficial to track).
- You don’t have enough time or haven’t found the best and easiest way to do it.
Well, I’m here to change that. If you are not tracking your net worth, you need to start this instant. Actually, finish reading this post and then get started. Not only will tracking your net worth give you the most accurate metric to analyze your financial progress from month to month, but it will also push you to reach all of your financial goals as fast as you can.
Finance 101: How to Calculate Your Net Worth
For those who don’t know, you calculate your net worth by adding up all of your assets (valuables, like savings, retirement accounts, real estate, etc) and subtract all of your liabilities (debts) from that number. Here’s an example of how to do this calculation:
Retirement Accounts: $40,000
Car Value: $5,000
Home Value: $100,000
Total Assets: $175,000
Home Mortgage: $70,000
Credit Card Debt: $2,000
Car Loan: $1,000
Total Liabilities: $73,000
Net Worth: $102,000
It really is that simple: (1) Add up your assets, (2) subtract your liabilities and you get your net worth.
Why Tracking Your Net Worth is Worth EVERY Second
I USED to think that tracking your net worth was for rich people. It was just something that older people did, or even people who were older and closer to retirement. I thought it was just one of those things that people with a large net worth used to brag.
“Oh look at how BIG my net worth is and how awesome I am…blah…blah…blah.”
This was before I opened my eyes to what retirement planning for young adults really was, of course. I really didn’t see a purpose of tracking my net worth.
Oh, boy, was I wrong.
My opinion changed when I started to understand what a net worth measures that other things do not. There are many metrics to track your success when it comes to personal finance, including but not limited to:
- Savings (per month, year, etc.)
- Value of home
- Savings %
I could go on and on. The simple fact is that people find whichever of the above metrics that they are good at and highlight them. For example, I may say that I have absolutely no debt. No student loans, no car loans, absolutely no credit card debt, and no mortgage. On a surface level, you might say that I am in a better financial situation than someone who owes $400,000 on his home. But, when you look deeper (and consider the other metrics), you realize that his home is worth $1,000,000. In other words, he has $600,000 in equity in his home. It’s clear who has the advantage now.
What net worth does, as a metric, is to go beyond the surface level. It evaluates your entire financial progress. It doesn’t ignore one aspect. It considers the entire picture – or close to it. Your net worth, in and of itself, does not include how much more money you are capable of saving or your return on your investments, but if you track your net worth from month to month, you can get a pretty good picture of these other factors.
Simple put – Tracking your net worth gives you the most accurate picture of your complete financial health.
How to Track Your Net Worth
When I first started tracking my net worth, I was probably the worst example of someone tracking their net worth. My process was horrendous. Here’s what I did to track my net worth, play by play (please don’t laugh):
Step 1 – Open up my excel spreadsheet
Step 2 – Get on the internet, log in to first savings account. Look at account balance & record the value in the spreadsheet on the first row.
Step 3 – Go to the next financial account, record value in the next spreadsheet row.
Step 4 – Repeat, repeat, repeat, etc.
It literally took me half of an hour to even see how big or little my net worth was. WHAT?!
If you don’t read anything else in this post, please read this next sentence. Tracking your net worth should be easy, fast, simple. With technology where it is today, there is no excuse for you to manually log in to each account.
The Best Software to Track Your Net Worth
Several months ago I finally splurged and bought a $50 software to track my money. It’s probably the most reputable personal finance software that exists today – and it’s been around for years. I thought I couldn’t go wrong – well, I was wrong. But that was because I didn’t know that Personal Capital existed.
Personal Capital is an investment company that created a secure online money management tool. It allows you to create an secure (same level of security as online banks) account that automatically syncs with all of your other finance accounts. There’s no longer a need to log in to each account ever again.
It allows you to not only track your net worth month to month, it also provides you with some basic tools to analyze your investment portfolio. Below is another view of the basic allocation tool, which helps you visualize your allocation. All of you investing wizards can try to guess my portfolio’s allocation, if you’d like.
The best part about Personal Capital? It’s absolutely FREE. No hidden fees, no requirement to enter your credit card information EVER. Personal Capital offers a valuable tool to customers with the hope that you will find one of their other products (that aren’t free) worthwhile. It’s a marketing strategy, but one which you can take advantage of without paying a cent. If you want to track your net worth in minutes, sign up for Personal Capital today.