No metric or tracking will have greater impact on your financial future than this one. And so many resources online explain it poorly or document it unrealistically.
Remember your first flip phone? After the start-up ISP I worked for was bought by a regional telecom, I transferred into the wireless sector. The company had few financial metrics or KPI’s (key performance indicators) developed as it was an emerging industry. What started as a 3-page Excel document, I developed and expanded into a 20-page monthly reporting package that received recognition from industry consultants of prominent financial institutions.
Financial advisors, planners, coaches, finfluencers (financial influencers) all have metrics to track your income, expenses, net income, savings, debt, credit score, budget, crypto, meme stocks, retirement investments, real estate investments, return on investment but few delve into this bigger picture, next-level metric.
Tracking your net worth. Not just calculating your net worth but diligently tracking it.
The thought of tracking something so elusive is akin to tracking health metrics like food/exercise because you don’t really want to know. I didn’t want to know for many years, and it wasn’t until several years after we bought our house in California that I finally started. By a quick calculation in my head, I knew it was negative.
It was 2009 during the housing crisis and even though we bought low, the home values still declined. A low price in suburbia Los Angeles is high in most other US residential neighborhoods. Our house in Albuquerque also lost value since we were only there a year and a half. To even get a house after selling the other one which took 15 months, we committed to a Jumbo 30-year fixed rate mortgage at roughly the current interest rate.
Once I dared to look at how much interest we would pay over the next 30 years, we knew we had to put any extra money we could against the principal and refinanced once the Fed dropped the interest rates. In a few years, we refinanced again to a 15-year mortgage and focused on paying that imminent principal down. It wasn’t until that point we started tracking our net worth.
Back then, there were no apps to track net worth, so we used an Excel spreadsheet. You can also use Google Sheets. There is now an app called Monarch but has an annual subscription fee of $100. SmartAsset did have a net worth calculator but no longer appears on their website. The downside to these is that you have to link all your accounts through these companies and for security reasons, I won’t do this.
Our tracker started out as one Excel sheet that had 10-line items. We continued to add sheets to the workbook each year, most often quarterly but some years only once or twice depending on the market fluctuations. I recommend at least quarterly. We have added and developed the tracking to include a graph, targets, milestones and my favorite, the Rule of 72 calculation.
We now have separate analyses for 401(k), company stock, auto-investing funds and separate net worth calculations that includes the value of our house and one that doesn’t. You continue to need a place to live and won’t sell that until you have liquidated most of your assets.
We don’t track our vehicles since these are depreciable assets that lose value the minute you drive them off the dealer/seller’s lot much like boats, motorcycles, etc. Nor do we track personal property – furniture, electronics, tools, yard equipment, etc. since you need those to live and depreciate in value also.
By tracking your net worth, your focus shifts away from tactical money management to strategic. The daily/weekly/monthly ins and outs of your finances become mentally redundant as most are automated. You know what to expect each month and only look for and deal with the anomalies.
Instead of focusing on the next material item you want to buy, you see and experience how the power of compounding works which steers most people into investing more and figuring out how they can diversify their assets to mitigate future value fluctuations. Tracking net worth is hard because it isn’t tangible and doesn’t satisfy instant gratification. You have to get comfortable with the long-term intangible.
There are many resources (books, websites, blogs, social media posts, podcasts, videos) on tactical personal finance. I find very few on strategic personal finance and could be why so many never get to this next level of focus.
Net Worth Calculator – Calculate Your Personal Balance Sheet (financialmentor.com)
Net Worth: What It Is and How to Calculate It (investopedia.com)