The Retire Wealthy Report

The best way to reach a goal is to have a goal. To have a goal though, you need to know where you are today and where you want to go. Measuring and tracking your net worth is an important aspect of financial management. It tells you where you are, where you’ve been and helps guide your behavior to get where you want to go.

I probably go a little overboard in that I track my net worth on a weekly basis. I have stock prices automatically downloaded in a spreadsheet (Will talk about how to do this is a future column), update my savings accounts, mortgage balance, and any contributions or dividend reinvestments that occurred in my investment accounts over the prior week. I also graph all the data, so I can look at one graph and see my net worth and my investment portfolio balances over the past 3+ years. I started doing this at the end of 2009 and it’s amazing to see how we’ve performed in that time period. Amazing in the sense that investments have gone up, but also just in the sense that I can look at over three years of financial history in one place.

For a more normal person, I think updating your net worth on a monthly or even quarterly basis makes plenty of sense. This requires only an hour or so every time you update, so the time commitment is minimal. I break my calculation down into several parts. First, I have my checking and savings accounts, then I track retirement investments, non-retirement investments (Read here for more on non-retirement investments) and estimated housing value less current mortgage amount. I don’t have any other debt other than the mortgage, but if you have student debt, credit card debt, auto loans, etc, you want to keep track of those as well.

To calculate your net worth you want to add up all your assets (house, checking/savings accounts, retirement accounts, other investments, other real estate, etc) and then subtract your liabilities (mortgage balance and any other kind of debt). It’s that simple. Here’s an example:

I left out the value of various household items such as furniture, appliances, etc., but those items do have value and could be included in this analysis if you want to. In fact, while I included a vehicle in my example, I actually don’t include my own vehicle in my calculations. I don’t have a car loan and I know the car is a depreciating asset that I would have to replace if I sold it, so I take a more conservative approach and don’t count it as an asset. However, since my example has a car loan, I thought it was fair to include the value of the car attached to the loan.

Tracking and understanding your net worth can be a very valuable and powerful tool in shaping and helping you achieve your financial goals. I built my own spreadsheet to track my net worth, but I have spent some time on a site called Net Worth IQ that seems like an interesting option. I don’t use it and can’t speak to its security, but at a minimum, it’s interesting to see and read about how people think about tracking their net worth. Happy tracking.

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