I began tracking my net worth in July 2013. This was a habit I formed two months after graduating from college. Since then, I’ve tracked my net worth at the end of every month. This is something everyone should do. This post will cover the following:
- What is net worth
- How to calculate your net worth
- Why I track my net worth
- Why you should track your net worth
- How to increase your net worth
I used Google sheets when I first started tracking my net worth. This method worked well but took a lot of effort. About a year ago, I switched to Personal Capital and believe they provide the best net worth tracker. Oh, and it’s absolutely free.
Anyway, tracking my net worth for the past five years played a big role in my financial success. This habit showed me if I was saving money or spending more than I made. Tracking net worth is important if you want to build wealth and achieve your financial goals.
Don’t believe me? This habit helped me go from being in debt to a net worth of $650k in 5 years.
In the early days, my net worth didn’t move much on a daily basis. Every two weeks, as my paycheck rolled in, my net worth enjoyed a modest bump. I would squirrel away as much of my paycheck as possible. I started by funding my emergency fund so I could avoid credit card debt in the future. After that, I put as much cash as possible into the stock market via my 401k, Roth IRA and brokerage account.
Today, my net worth fluctuates a couple hundred to a few thousand dollars on a daily basis. The fluctuations are a result of market volatility and compound interest. But, I wouldn’t know any of this if I didn’t track my net worth.
What is net worth?
So, what is net worth? Why do I track it? And why should you track your net worth as well?
Have you ever heard someone say he is a millionaire? Or heard something like, “she is worth over $10 million”?
Odds are you probably have. These statements are referring to their “net worth”. Everyone has a net worth. Some people have a positive net worth. Others have a negative net worth which means they are in debt.
Simply put, net worth is the value of all the stuff you own (assets) minus all the money you owe (debts or liabilities). The infographic below provides more detail on how to calculate your net worth.
Why do I track my net worth?
The old saying “what gets measured gets improved” can be applied to many aspects of life. This saying works for sports, learning a new language or developing a new skill. The phrase also works for financial goals like tracking net worth and building wealth.
So, why do I track my net worth?
Simple. Net worth is a key metric to building wealth, generating passive income and achieving financial independence. What gets measured gets improved and I want to improve my financial wellbeing.
Becoming wealthy is not an accident. Building wealth takes time, discipline, and some planning. I have financial goals of building passive income from dividends, generating income from my rental properties, and retiring in my thirties. Tracking my net worth has allowed me to work towards these goals.
I’ve been tracking my net worth over time and noticed it increases faster every year. This is because I’m constantly investing and letting compound interest do the rest of the work.
Why you should track your net worth
Have you ever wondered how to build wealth? Or how wealthy people create wealth? Think of your net worth as a financial scorecard. The higher the score the better you are doing. The lower the score the worst you are doing.
If your net worth is positive and increases odds are you have some good financial habits. There is always room for improvement though. This would translate into a ‘higher score’.
If your net worth is negative or decreases, you might be doing things wrong. Something needs to change if you find yourself in this position. This would translate into a ‘lower score’.
If you don’t track your net worth you probably have no idea where your financial health stands. This definitely needs to change.
Regardless of your financial goals, you should know and track your net worth.
The best place to start is by creating a budget and tracking your net worth. I would recommend a free tool like Personal Capital. Their free net worth app will do all the work for you. The app will let you know how much you spend, if you are growing your net worth, and when you can retire.
Once you figure out your net worth, take a look at the table below to see how you stack up against others:
How to increase your net worth
Your net worth will go up over time if you spend less than you make then save and invest the difference. Repeat this process over and over again. Eventually, you’ll have more money than you’ll ever need. This is my formula for building wealth; its simple and works.
Your net worth will drop if you spend more than you make. This means you will accumulate debt which destroys the ability of wealth creation. Don’t do this.
I would recommend checking out these six simple steps to a six-figure net worth. It’s a great guide if you are new to building wealth.
Do you know your net worth? Is tracking net worth a habit for you? What success have you seen by tracking your spending and net worth? If you aren’t tracking your net worth, what are you waiting for? Try a free tool like Personal Capital and see how you are doing.
Tracking your finances is largely a day by day thing. Tracking your net worth lets you step back and see the progress you are making over time. It’s definitely important.
Great article! I need to start tracking so I can have another reporting system that gives me another reason to celebrate growth.
Simple but effective description. Really like your infographic!
What makes me nervous are the folks who don’t do any of these things. Being one of the older guys at tech company means that I am often trying to give some advice like this to the younger guys. In truth, it’s the advice I wish I had at their age.
glad you are paying it forward. I was fortunate enough to have an ‘older’ guy at work talk to me about lifestyle inflation. This was in the first few months of working. Greatly appreciated his advice even to this day. Keep it up
I’m all in for tracking my net worth via Personal Capital. BTW, your site looks awesome. I like the changes!
That’s really informative.. Just because of this article. I am able to calculate my net worth.
Thanks for this interesting read.
Your net worth graph is beautiful! We started from a negative 450k and are almost to zero. Goodluck hitting your number! 🙂
Thanks! and wow, 450k in the hole but almost at zero? That must’ve taken some serious dedication, determination, and discipline. At this rate, you’ll be at positive $450k before you know it.
I feel like tracking your net worth makes your financial goals clearer and easier to set. This was a great read!
I really like your insights on Net worth and the importance to track your net worth. As a staunch follower of your financial blogs, i would like to add on the fact that there is a need to increase ones streams of income as a probable booster to ones continued growing net worth.
This is a great post and I really appreciate the openness and putting up your net worth graph for all of us to have an easier time understanding. I agree with you, tracking your net worth will help you improve it faster than you would if it wasn’t tracked. It gives you something to improve on, and helps you set better financial goals.