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Today’s guest post is from a fellow superhero. Michael is the creator of Super Millennial. He teaches people how to evaluate their financial situation, simplify money management & automate their investments to reach their financial goals. Subscribe for his personal finance “Keys To Success” and blog updates here. Make sure to follow him on Twitter as well.
Note from FinanceSuperhero: This post greatly influenced me to begin tracking my own net worth in earnest. Ironically, when I started tracking my net worth for the first time in earnest rather than simply maintaining awareness of a ballpark figure, I was pleasantly surprised to find out that it was much higher than I had previously thought.
Everyone wants to be a millionaire or billionaire, but to most people it’s just a dream and will stay that way forever…UNLESS you decide to make your dream a GOAL & work hard to achieve it.
If you’ve read “Think & Grow Rich” or Millionaire Next Door it should be evident how important goal setting is in all aspects of life, including finances. Wanting something is one thing, planning & going after it is another…one way to start focusing on becoming a millionaire (so you can ball out like DJ Khaled in any of his 80 music videos) is tracking your net worth. Even though I don’t think he has mentioned/screamed it yet, it’s a major key to financial success (trust me).
Do you know or track your net worth? I’d be pretty surprised/impressed if you are. Whenever I ask someone if they are I tend to hear the same few excuses:
- “Why should I track it? Seems time consuming & doubt it’ll matter ”
- “But I don’t have that much money…”
- “What’s the point of tracking a few thousand dollars?”
- “I’m way too in debt to want to see exactly how much”
It doesn’t matter if you have $1,000 or $1 million dollars, it’s amazing how helpful it is to track your overall net worth…and it takes five minutes a month!
I started tracking my net worth after reading J Money’s “Budgets Are Sexy” …. over the past eight years he’s been able to go from 50K to now 500K and shows exactly how. Needless to say I was very inspired to start…
I REALLY wish I would have started this earlier in life, I’ll be honest and admit I just started in late 2015 (around 9 months now) and within a few pay periods I was amazed at how much it factors into my financial decisions (& how good I was at saving). Don’t worry I’m not asking you to track every single penny you spend, because I know you won’t (nor would I), let Mint automatically do that for you.
I’m only asking that you do this once a month, not daily or weekly to really see your progression and how easy it become to get “richer” by paying attention to your finances.
Here are the top benefits of tracking:
- Financial Progress: We all want to evolve & progress in anything in life, its human nature. It’s even better when you grow your $$$ & can look back to the month or year previous and see how far you’ve come. Progress is impossible without change!
- Confidence Builder: For example if you saved an extra $1,000 in your emergency fund or watch your 401K increase due to a bigger contribution. It will make you feel proud of what you’ve been able to accomplish (and want to do more)…..do you think millionaires just got there by luck? No they made a conscious effort to earn, save & repeat!
- Avoids focusing on just assets: If you have 200K in assets but 100K in debt you’re just lying to yourself, it’s important to factor both into the calculation.
- Loans: Your net worth can be a factor if you plan on applying for a loan in the near future (i.e. banks feel more comfortable giving you a loan when you have good credit & money in the bank).
How should you track it? There isn’t one specific way but here’s how I do it and takes up 5-10 minutes each month. I pull up my Personal Capital account for most of my accounts and then add to a google doc (not all of my accounts sync w/PC).
- Here is the Net Worth Tracker I use & recommend (click to download excel file)
It doesn’t matter if you use it or a different version, it’s just important to get in the habit of tracking your progress. Make sure to include all accounts and a comments section so you can notate when there are major +/- changes (i.e. 401K increase, stock market drop 5%, tax refund, inheritance, etc).
You’ll spend 5-10 minutes a month entering the information for assets & liabilities and it will caclulate your net worth.Here’s what you should include:Assets
- 401K – You have a 401K and contribute AT LEAST to your employer match right?
- IRA – Roth IRA’s are amazing, if you need to learn more check this out.
- Checking Account: I personally use Chase, but where’ve you bank make sure you don’t have a monthly “convenience” fee and low ATM fees if you bank at another ATM.
- Savings Account: I love Ally bank – no fees & 1% interest is better than nothing
- Brokerage Account: If you have one…
- Additional Accounts: Any other investment, CD, money market, etc….
- Auto Loans: This is an asset and a liability, if your car is valued at 25K and you have 15K left on the loan add the 25K to assets & 15K to liabilities.
- Student Debt: Yes they suck but you gotta include them too…..
- House: Same as the car example…this is an asset and a liability, if your house is valued at 250K and you have 150K left on the loan add the 250K to assets & 150K to liabilities.
Regardless of where you are financially, knowing your net worth can help you evaluate where you are and plan for your financial future. Once you understand your situation you become more aware of your spending/budgeting and can achieve both your short and long term goals.
On top of planning and reaching goals it will also help you stay motivated and can be a huge confidence booster. It can also make you aware of your current investments and how they are fit for different market conditions. For example in February the stock market dropped but my net worth barely moved, I had such good asset allocation that the loss was minor in comparison to the market.
If you are not watching your personal net worth on a regular basis, you are skipping an important step in preparing for retirement (or EARLY retirement if you do it right). As always save early so you can thank yourself later. Once you have your tracking system setup hold yourself accountable to spend five to ten minutes to update monthly (use a calendar reminder or choose a specific day of the month).