- Read WHY it is vital to track your net worth
- Figure out your target goal with the net worth formula
- Get a [FREE] net worth worksheet
When is the last time you got a physical examination at the doctor's office?
Do you remember the routine you went through once they called your name? Chances are, the routine probably consisted of measuring your “Vitals” and assessing your overall health.
The doctor-nurse team most likely checked your blood pressure, had you step on a scale and listened to your heart amongst other things. But could you imagine halfway through your examination telling the doctor,
“Doc, I am not interested in getting on that scale or putting that cuff around my arm, I don't really care about my weight or if my blood pressure is high.”
Sounds pretty silly right?
While our physical health is certainly more important than our financial health, taking a financial health inventory several times a year isn't a bad idea. And that starts with knowing your net worth.
In fact, if you're not aware of your net worth, chances are you're neglecting your financial health (Net worth worksheet at the end of the article).
Have awareness – know your networth.
Sticking with the health analogies, wouldn't having awareness where you could stand to improve your health be something you would like to know?
For example, if your doctor said something along the lines of, “Be sure to manage your stress better and eat less fried food,” you would most likely take their advice.
While not everything an expert like a doctor says is what we want to hear, having awareness does have some benefits. For starters, awareness causes us to:
- Shed light on areas that need improvement
- Take action in those areas
- Reflect and learn from past experiences
This is exactly why tracking your net worth is vital to making sure financially you're on target to hit your savings goals for retirement and live a lifestyle you enjoy.
Just like knowing the exact routine you need to improve your health, knowing your net worth will hopefully instill a hunger to do things to increase it!
What is net worth anyway?
Simply put, your net worth is the combination of what you own (Assets) and what you owe (Liabilities).
To quickly figure out your networth, simply add up all your assets and liabilities, then subtract the two. For example, if you had $100,000 in assets and $75,000 in liabilities, your hypothetical net worth would be $25,000 (you should also read up on what is called “Liquid Net Worth.” too).
Typical assets include:
- Home (Market Value)
- Car value
- Investments (Retirement, 401k, Stocks, etc)
- Insurance Policies
- Cash in accounts
- Personal property like jewelry or art
Typical liabilities include:
- Mortgage debt
- Auto debt
- Student debt
- Credit card debt
- Other debts (Lines of credit, RV's, Boats, financed home goods)
While taking out a piece of paper and a pen, or hopping on Excel is just a few ways for tracking your net worth, there are other automatic options such as Personal Capital or even Mint that will help you too.
But besides awareness, why is tracking your net worth so valuable in the first place?
5 Quick Reasons to Know Your Net Worth
According to Brian Meiggs, the founder of My Millennial Guide, “Knowing your net worth can help you track your path to becoming wealthy and financially independent.”
Here are 5 quick reasons to know your net worth:
1. Increase in Your Financial Action
Recently I read that the number one characteristic most super successful and productive people possess is that they take action. They don't have to be perfect – they just do something.
What typically incites action is knowing why you need to. Seeing your net worth, big or small, should motivate you to start taking action. Even if that means you stop comparing yourself financially, which is just one trick to increasing your net worth.
2. You'll Stop Spending So Much Money
Tracking your net worth will place value on growing your net worth, instead of spending money on things that really don't matter.
We have all experienced buyer's remorse from buying things we don't really want or need. It is a lot easier to avoid making silly purchases when we have an overarching goal in mind.
The first step in increasing your net worth is to stop spending, so you have extra cash to throw at your debt!
Related: 17 Tips to Stop Spending Your Money
3. Pay Off Debt
There are two ways to increase your net worth if you really get down to it:
- Pay off liabilities
- Increase your assets
Either way $1 towards your debt or $1 towards your investments increases your net worth by $1.
So after you get your spending under control and you have some extra income, you can start knocking out your debt.
Start with small amounts of debt that are easy to knock out, thus increasing cash flow. Once you pay off your debt (outside of your home) then you can really start focusing on saving/investing and letting your net worth grow with compound interest!
Related: 25 Steps to Pay Off Debt Fast
4. Save More!
Once you get your money under control and you pay off your debt, now you can start saving and investing like crazy.
You can start by setting up an emergency fund that is at least three months of your fixed expenses. Make it a “Zombie Proof” emergency fund and be sure to house it in online savings account like Ally – separate from your checking.
Personal Investing Note: Once you have your emergency fund set up you have several options for investing, my go to being using a . Investing in individual stocks is difficult without expertise. Robo advisors that leverage stock index funds are always a safe bet.
5. Increase Earnings
The three basic components of a healthier financial situation are:
- Spending less,
- Saving more, and
- Making more
The last being the one most will fail to focus on because making more money is typically perceived as more challenging in nature. That being said making more money is essential to increasing your net worth – especially if you're playing catch up.
So at this point, you might be wondering how to start tracking your net worth. Like any good goal, it starts with having the right target in mind.
The right target for your net worth starts with the net worth formula based on age and income.
Net Worth Formula
Using this net worth formula from Investopedia, the target net worth you should strive for by age is as follows:
For example, let's say John is 30 and he makes $60,000 per year. John's net worth target for his age would be (30-25 = 5) * (1/5 of $60,000 = $12,000) or $60,000.
While this isn't an exact science, you certainly could have less (Or hopefully more) and quickly get caught up depending on your age, but having a target in mind will help you start the process of tracking your net worth!
How to track your net worth.
At this point, you probably recognize that knowing your net worth is the wake-up call you might need. While there is no “Correct” way to track your net worth, here are some ideas to help you get started.
The easiest way to track your net worth is to use apps that automatically do it for you.
Simply linking all of your accounts with apps like Mint or Personal Capital does the work for you. According to Meiggs, “It can tough to track your net worth by yourself, so you can opt to use financial management tools.”
He recommends using Mint which, according to Meiggs, “Is an incredibly popular online personal finance tool that’s great for all kinds of users. Aside from it being a great budgeting tool, it has a plethora of money management tools that you can also use. What’s astounding is that Mint is free to use and allows users to create financial reports in a matter of minutes.”
Another great tool that is specifically designed for net worth tracking is Personal Capital.
Personal Capital Net Worth Tracking:
Personal Capital has both free and paid net worth tracking options, but it is the most trusted net worth tracking tool.
Depending on your level of need when it comes to tracking your net worth, Personal Capital's free feature is perfect for tracking all your investments (Assets) and liabilities all in one spot.
While Mint and Personal Capital both have some cross over features, here is the biggest difference between the two:
- Personal Capital = Designed for Net Worth, has some budget features. Focuses on net worth tracking and wealth managing all in one place.
- Mint = Designed for Budgeting, has a net worth feature. Focuses on transactions and spending.
While you certainly don't have to use Personal Capital if you already use a budgeting tool like Mint, most people who track their net worth will use a combination of the two.
However, when you first get started with tracking your net worth, sometimes going old school Excel or pen and paper are your best bet!
You can track your net worth by simply creating an Excel sheet with a few columns in about 3 minutes, or you can just use the MLW Net Worth Excel tracker here:
While this requires manual updating on your end, creating your own net worth tracking tool isn't too hard. Simply open an Excel sheet, create one column listing your assets with the amounts next to it, followed by the third column with all of your liabilities and the amounts next to each.
Simply auto sum each column and have your excel sheet deduct your liabilities from your asset total. If you want to go really, really old-school, you can make use of a pen and a net worth worksheet.
Net Worth Worksheet.
Having a physical, tangible item can sometimes be the motivator we all need to get things done.
Some people like tracking their budget with an app, but having a physical copy of it on their refrigerator keeps them on top of their budget. You can simply use a piece of paper and list out ALL of your assets and liabilities, then subtract the two.
Or you can just use the MLW Net Worth Worksheet right here:
At the end of the day, when businesses don't do well they go out of business. If they operate in the red for too long, they have to make adjustments.
In one of my first ever blog posts on creating financial security, I recommended treating your finances as a business. AKA, making sure each month you're in the black and increasing your positive cash flow monthly.
The best way to make sure this is happening is to track your net worth. So how you go about it is up to you, but hopefully, the resources provided here can help you!
Question: What is the best way to track your net worth?
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎