Finance Friday – Track Your Net Worth

Posted on October 19, 2018 Updated on October 17, 2018

Here are some good articles to check out this week, with my article below the links:

• Financial CME #5
• The Other Half
• Stepping Back

Track Your Net Worth

If you want to know how you are doing financially, you need to track your net worth. Luckily, there are websites and apps that make this automatic and do it for you.

What is Net Worth?

Simply, it is the value of everything you own minus everything you owe:

Net worth = what you own – what you owe

Things you own might include bank accounts, investments, real estate, businesses, and anything else with a tangible value. Typically, people do not include material items that are decreasing in value (depreciating) like furniture, clothing, cars, computers, etc.

Things you owe might include loans, credit card balances, mortgages, and anything else that causes you to owe someone or something money.

How Can You Easily Track Your Net Worth?

While this can certainly be done manually on paper or utilizing a spreadsheet, technology makes this easy. I’d highly recommend two websites/apps I have personally used, Mint and Personal Capital. Once you sign up and load all of your account information, both will automatically track and update your net worth.

While I have used both, I like Personal Capital better because it has more robust investment analysis tools than Mint. In my opinion, Mint is more focused on those who want to examine their spending and budget.

There are a few downsides to using these sites/apps. First, you have to load your usernames and passwords for all your accounts, placing all of this valuable information on yet another site that could get hacked. Both sites use modern encryption technology, so this is not something that keeps me up at night, but it is something worth noting.

Second, both sites are not in business to help you for free. They are trying to make money, and the way they do it may bother you. In the case of Mint, there were lots of “targeted offers” when I logged on for credit cards and bank accounts that they were recommending to me. These were easily ignored.

In the case of Personal Capital, they periodically contact me via email and phone to try and get me to use their financial planners. For a do-it-yourself investor like me, I have no interest in this and, again, it is easily ignored, but it might annoy some. I find their website/app so useful, though, that it is worth it for me.

Why Are You Tracking Your Net Worth?

Because you manage what you measure. Measure and track your net worth, keep it in mind when you make financial decisions, and your net worth will increase, which is the ultimate goal!

For example, by tracking your net worth you’ll see that when you purchase things your net worth goes down by the price of whatever you purchased. The only time spending money does not hurt your net worth is when you are investing, not buying depreciating items.

What Should My Net Worth Be?

Everyone’s situation is different, but one formula from a book that everyone should read, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, to estimate what your net worth should be is:

(Your age) x (your annual income) ÷ 10 = your target net worth

For example, if you are 25 years old and make $100,000/year, your net worth should be approximately $250,000:

25 years x $100,000/year ÷ 10 = $250,000

Keep in mind that this is just an estimate, but it can be helpful to give you an idea of whether you are ahead of the game or behind the power curve.