For years I’ve heard it from podcasts, books, and other personal finance media:
track your net worth
track your net worth
track your net worth
blah, blah, blah
For years, I didn’t listen to them. Sure, every once in a while I’d log in to Personal Capital and take a quick glance, but I wasn’t super interested in tracking it on a regular basis.
But, as I’ve gotten into content creation, I decided to dig into it a little bit. I’ll admit… I did this partly because it seemed every third person was using their net worth tracking spreadsheet and I knew I could make a better spreadsheet.
Through this exercise, I started to realize there actually were benefits to tracking your net worth.
It highlights overall financial health
Your income and expenses only tell you what you’re doing today.
Maybe cash is tight because of a loan, but that is only temporary.
Tracking net worth provides a bird’s eye view. Without it, it’s easy to ignore your loans or hyperfocus on them. We’re really bad at ruminating or ignoring what we don’t like, and it’s not often that we’re in between that.
It forces you to measure progress
Often months, years, and maybe even decades go by without reflection.
For me, the last time I truly tracked my net worth was in 2017. I wasn’t avoiding it necessarily, it had just slipped my mind.
Sure, we would look at our investment balances and calculate what our balances would be in 5, 10, or 15 years based on contributions and returns. But I never truly did a deep dive.
Tracking your progress forces you to stop and reflect, which illuminates whether you’re on target or not. Once you have this information, you can make informed decisions. You can adjust where you need to or gain a sense of confidence at your progress.
It refocuses you on the long-term
In the busyness of every day, it’s easy for our decisions to be based on short-term impact.
Tracking refocuses you on the long-term impact of your decisions today.
An easy example is a car. Sure you could buy that car today. But what if I delay the decision by one year? When you’re tracking, you can know the answer.
It’s not that your decisions have to change, but just that your decisions are illuminated so you can make the best decision for you.
It improves your decision making
Speaking on decisions…. data is the ultimate clarifier.
We typically make decisions on hunches which are often based on bad information.
Digging into your net worth and projecting it forward will provide you with a clear picture of today.
That clear picture will allow you to make decisions based on data, not hunches.
It helps you manage your career
On track or ahead? Take the job that provides better experience over the one with more money.
Behind? Start a side hustle or look for a new job with higher pay.
The framing of your net worth, and net worth goals, allows you to look at career opportunities through that lens. We often think we always have to do the next thing. But if you desire a shift in your career, knowing your net worth can provide the confidence to take a new risk.
It simplifies investment tracking
We’re really bad at tracking our stuff. I seriously forgot I had physical gold and silver for 4-5 years.
Each state in the US has an unclaimed asset website because of all the accounts abandoned and paychecks not cashed.
By including all accounts on a spreadsheet, or in a net worth tracking app, you help yourself remember.
This also makes you check-in at least annually. In the past, I’ve found that my allocations were off, or that I’d misremembered a decision. Sure, this has caused frustration or anxiety because of lost investment returns… but one year of a mistake is way better than 20-30 of a mistake.
It influences your goal setting
Everyone should have short and long-term goals, including financial goals.
Does the new car or house knock you off track of your financial goal?
Maybe that’s okay, but you need to know that’s the decision you’re making.
It helps you focus on you
It doesn’t matter what the average net worth is for your age. I used to look at these charts to compare, but what’s the point?
The ultimate goal is your retirement goal.
Use the 4% and set a retirement goal.
- Estimate your annual need
- Divide it by 4%
- Add current balance and annual contribution
- Multiply it by 8%
Now ask: are you on track?
It provides motivation
Growing your net worth is slow and often boring. Tracking provides you the data to clarify your progress, which helps keep you motivated.
It helps you see how little changes today can have a huge impact.
When you’re behind your goal, it makes you focus.
When you’re ahead or approaching a milestone, you can choose to push through or enjoy something a little more.
How do I track it?
Here is the formula:
Net Worth = Assets – Liabilities
Assets: anything you own of value
- Other Valuables
- Investments (401k, IRA, Brokerage)
These should be things that retain value over time.
Some choose to only include Cash, investments, and their home for simplicity.
Liabilities: anything you owe to another
- Car Loan
- Credit Cards
- Student Loans
- Home Mortgage
- Other short or long-term debt
If you’re interested in going a little deeper on this, I’d encourage you to listen to my latest podcast episode.
Also, here are a few places you can track your net worth:
My Net Worth Tracking Spreadsheet
If you want to better understand financial statements, here are 3 ways I can help:
- Purchase the Financial Statements Decoded eBook.
- Join the Financial Statements Decoded cohort waitlist (next one in January).
- Get one-on-one consulting on your financials and make more money (Booked through December 2022).