Tracking Your Net Worth

Tracking Your Net Worth: Everything You Need To Know

Trying to figure out am I rich? What are all my assets worth? Want to know your net worth? But unable to find out? Need to know how to do it? You are at the right place asking answers to all the questions. This article includes the importance of net worth, how to calculate and track it, etc. Just spare us your few minutes and we will be all set to know everything about net worth.            

Net Worth: Introduction

The net worth is the total worth of all the things you own less the total of all the money you owe. It is as simple as that.

The assets (the things you own) include cars, cash, real estate, and other investments. The liabilities (the money you owe) includes the mortgage, student & car loans, car loans, & credit card debt. This is why you should work while studying in college.

Net Worth: Importance 

Tracking Your Net Worth

As appearances are deceptive.

In this present world of easy credit, it is quite simple to convince oneself you own more than you do. Your net worth is an outlook that shows you what you own, and what you owe to the bank.

Net worth also assists you to keep track of you’re spending your money on things that give rise to your long-term wealth or completely destroys it. 

By putting your investments in things that grow in value over time, you’ll get towards your long-term money goals a bit faster. Especially if you can develop the habit to avoid high-cost liabilities or assets that decrease in value. And in case you want to witness if you’re succeeding, all you want to do is keep a check on the trajectory of your worth.

My Friend, are you all through with the 4th class Maths?? You must be. Then you are all set to calculate your asset’s worth. But how?

Assets & Liabilities

Add Up Your Assets

Here is a list of total assets that you must keep a count of to calculate your net worth. Read below for more.

Cash: Checking the amount of cash put in your savings account.

Real Estate: This will include a list of your house & other rental properties. You can also use certain applications or programs that help you to calculate your real estate worth easily. 

Retirement Accounts: Value of 401(k)s, 403(b)s, 401(a)s, 457s, IRAs, Thrift Savings Plans, etc.

529 Plans: Keeping the funds set aside for your kid’s college education, it is still yours till your child gets there. You can include the 529 plans in your assets & liabilities section.

Investments: Value of any bond, stock, or other alternative investments you have. Do not double count all the investments present in your retirement accounts.

Cars: You can even include the value of cars you own by using certain apps and programs.

Other Assets: it includes valuable artwork, paintings, jewelry, and other things you can sell to increase your worth. 

Calculate The Liabilities

This part is quite sad. Now we need to add up all the things you owe to people or the bank.

The liabilities include:

  • Auto loans
  • Mortgage
  • Student loans
  • Personal loans
  • Credit card debt
  • All other debts: Motorcycle loans, boat loans, consumer financing (like buying a phone). This part isn’t like assets where we can neglect the little things. Whatever you owe someone, put that on the list.

Now, total up all the liabilities.

Find Your Net Worth: Basic Maths

It is the easiest formula of all: Net Worth = Total Assets – Total liabilities.

So, after this simple subtraction, you will have your net worth.

Tracking The Net Worth 

 What your net worth stands today! This actually doesn’t matter a lot. The better thing to consider is where it is going. This means you will have to calculate it on a regular basis.

We use a free service offered by Personal Capital to keep a track of our worth over time. All our accounts are auto-connected and auto-updated. Moreover, it has helpful charts to show the progress, and we can further click to see the trajectory of one specific asset over time.

You can even keep a notebook or spreadsheet to keep a track of your accounts. Like Bullet journaling which is a fun way to keep a track of all such things.

Your Net Worth: How To Increase? 

Increase Wealth

Need to increase your net worth?? There are a few fundamentals that must be followed so you keep moving in the right direction with your net worth. Read below.

  • Get Your Spending On Track

Review & survey your budget and search for holes where you can cut your spending & expenses. The more money you save each month, the more that asset section grows. And thus, it compounds every month if you keep your expenses & spending lower.

In case of required expenses, like insurance & home, you can do some price comparison to check if you can lower the costs.

But do take a nice look at expenses that are inevitable, but really aren’t. Food is a brilliant example of this for everyone. You need to eat, but even if you go for organic, local produce & meat, then you do not have to spend $1,200 a month. Focus on this category for a month or two & learn how to reduce food waste. Learn to save money on groceries. We guarantee you will surely see an impact on your spending & budget.

In case of entertainment and fun expenses, Life needs to be worth living so give yourself some space and live your life with joy. But do embrace the things that truly make you smile along with questioning the items in your budget. Your money must serve your needs.

  •  Pay Down The Debt

Want to raise your net worth? Crush that liabilities section.

Make a solid plan to pay down debt with measurable goals. How much do you wish to pay off every month? Are you going to get into a side hustle or go for some extra projects to speed up the process? Then go for tracking.

Just like regularly following your net worth, keeping a track of your debt payments shows you that you’re really making a real impact. Moreover, printable trackers are quite great as they give a clear vision of how you’re doing. And marking off debt helps in giving a tangible feeling to your hard work.

Remember that paying off debt always has a double benefit. Firstly, you reduce your liabilities, and secondly, you free up the cash you were giving to interest payments to invest & raise your net worth faster. sometimes investing in peak can also give out high values.

  •  Earn More Money

Spend less or earn more? Why not both.

Whether you ask for a raise or begin a side hustle, there are a lot many ways to rise up your earnings in this present world. Increasing your income provides you more cash every month to invest or save. And those extra dollars give rise to your net worth.

Just remember one thing that increasing your income would be negligible if you up to your spending by an equal proportion. Lifestyle inflation is what makes many lawyers, 

doctors, & investment bankers broke. And moreover, it can cap your net worth quickly.

  • Invest In Appreciating Assets

Keeping your money in a vault will increase your net worth. But it may keep the growth fully dependent on your working hours. To continue to raise your wealth, you need to work to add more and more money to the value. And to outrun the decline in money saved due to inflation.

On the other hand, you can invest in assets that rise in value over time. Investing is the best way that helps your wealth increase while you sleep. Stocks, commodities, bonds, real estate, etc. are the ones we are talking about. And not your boat or car whose value diminishes over time and slowly there is a decline in your net worth.

Net Worth: FAQs

Net Worth: FAQs

Net worth is a simple concept but this doesn’t mean there cannot be confusions regarding it. So, here are some questions that we came across while researching the content. 

Is It Possible For The Net Worth To Be Negative?

Yes, all this is possible. In case you have more liabilities than assets, it is 100% possible for your net worth to go negative.

A lot of people have a negative net worth after coming out of school, as they have student loans with that brand new degree. Without the time to build up their assets, the debt and other liabilities puts an end to any savings or investments they presently have.

It can also occur after you buy a house. Since you’re only putting 10% down (sometimes more), that 90% of your house value will offset all your other valuable assets. Let us assume you have $50,000 in retirement, a $10,000 car, and put $30,000 down on a $200,000 house. You have $80,000 in assets. But your new $180,000 mortgage means your liabilities are almost two times that amount. Your net worth? All Negative $1,00,000.

If your net worth is negative, one of your first financial goals should be to pay down debt.

What Should Your Net Worth Be?

There are a thousand ways to give an answer to this question. It depends on you if  you want to know by your income level or age group or career path?

What your net worth should be is special to you and your goals. Comparing yourself to others isn’t necessary & helpful. Especially as a lot of people don’t have saved enough and appreciating yourself that you have more than average people won’t help you determine if you have the right amount you need.

Firstly, fix your financial goals and use them to determine how much money you need. But, if you really need a benchmark, go through some ideas here below.

Millionaire Next Door Formula

One of the best books on wealth is The Millionaire Next Door by Dr. Thomas Stanley. He proposed a simple formula for determining if one is saving enough money depending on your income & age. Firstly, multiply your age to your pretax annual household income taken from all sources. secondly, divide all this by 10. This will give you your worth (subtracting any inherited wealth).

Example: John is 40 and makes $60,000 a year.

40 x $60,000 = $2,400,000

Divide by 10 = $240,000

John’s worth will be $240,000.

Keep in mind: This basic formula has some faults. If you are a young blood, it is guaranteed to overstate the amount of money that you could have saved. And if you’ve just changed careers earning a much higher income, these numbers will be quite too high.

Median Net Worth: Age Basis

Time is one of the most crucial factors when we talk about worth. So, below is the median net worth split by age group. This is 2018 U.S. data & includes home equity.

Age

Median Net Worth
Under 35: $6,900
35 – 44: $45,740
45 – 54: $100,404
55 – 64: $164,498
65 – 69: $193,833
70 – 74: $225,390
75+:

$197,758

How Often Should We Calculate The Net Worth?

Quarterly is the best time to start.

Calculating your net worth every month can prove to be a useful exercise if you have a budget meeting with your family regularly. But most of the time the worth won’t shift a lot from month-to-month.

On the other hand, checking your net worth annually will not provide you a sense of positive or negative progress. You miss bad investments or bad money moves that were hurting or are hurting your wealth and asset generation.

Is All Net Worth Created Equal?

That’s not right.

Someone who has $3 million in profitable rental assets can retire way before someone with $3 million stuck in their personal house. The rental assets keep bringing in money each & every month. Your house? Not so much.

For this sole reason, we keep a track on three different net worth numbers. Firstly, the family’s total worth that includes all assets & liabilities. Secondly, your spouse & personal net worth minus the kid’s college savings. And thirdly, financial independence net worth that cuts down things like cars and savings.

Net Worth: What Are The Differences?

Income Generating Vs. Not Income Generating: 

Some assets are cash flowing investments that make your money grow. Like bonds, stocks, rental properties, & many more. On the other hand, there are some assets that don’t bring in any primary income. Like your house, cars, etc. If you’re running for financial independence, you wish to keep a track of your income generating worth & grow that quicker than non-income generating. This means backing out of your house. Until you plan to live on your house equity.

Liquid vs. Illiquid: 

There are some assets, like stocks & bonds, that are quite easy to sell whenever required. There is a demanding market where someone wants to buy what you own, or else you can exchange on the go. However, other assets are quite hard to move. It takes a lot of time & cost to sell them. Vintage cars, real estate & precious Gems all fall under the domain of the less liquid category. Knowing this split is important in planning for retirement.

Intended Use: 

This one is quite easy. If you have $30,000 saved for your kid’s college, it doesn’t come in your worth. This example falls under the intended use section.

Net Worth & Budget: Correlation

Net Worth & Budget: Correlation

Yes! Your net worth is the best thing that will highlight the progress of your financial structure. But it will not aid you in making real-time improvements. Your budget is what aids you in taking control of your expenses & spending, and direct dollars towards your financial goals. Thereby, correlation between net worth and budget improves your financial worth.

Final Say On The Net Worth!

A simple formula: Assets minus liabilities. Basic but powerful as it tells you about your net worth. Moreover, your progress towards your financial goals & the effectiveness of your investments all come under this basic formula. We hope you were able to understand the basis of net worth and will be able to calculate it. All in all, this is not a calculation based article but our article relies more on the fact that one can be financially independent. In turn, it will raise the net worth and make you financially powerful and stable. 

We are optimistic you admire our efforts and will go through our other articles if you need our good words helping you out in your difficult times.  

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