Let me show you why it might be important to track your net worth, plus how to do so using free tools.
I have a double dare for you: start tracking your net worth.
Why might it be important to track your net worth?
I started doing this about 8 years ago (in November, 2009, to be exact), and now I do it using the free Empower Dashboard (which automatically updates everything for me — it's awesome!).
And it's one of the best financial decisions and most powerful personal money management tips out there *pats self on back*.
What is Net Worth, Anyway?
Before getting into the “why” behind tracking net worth – plus those 477 people’s bank statements – let me go ahead and tell you what it actually is.
Net worth measures what your personal assets are worth, meaning everything that’s left after you’ve subtracted out debt. When calculating it, you include both assets (home value, retirement account balances, investment accounts, savings, jewelry, etc.) as well as liabilities (mortgage, car loan, student loan, credit card debt, etc.).
Pssst: You should definitely include all debts in your calculation. But what exactly you include on the assets side is more personal. For example, while our Ford Focus is worth around $6,500, I don’t personally include car values in our net worth because it’s not likely I would liquidate my car…especially since we only have one…and ever “realize” or get that money out of it. But our home? Well, sure, we might sell that one day and rent or buy a new home.
Once you subtract the two, you can see how much you’re “worth” (had to put quotes around that one, because you’re obviously priceless! We’re just talking about your money stats).
Why Might it be Important to Track Your Net Worth?
Tracking your net worth can lead to all kinds of financial change for you.
The sooner you get started, the better!
That's why I'm talking about the reasons why it's important to track your net worth.
1. It'll Change Your Relationship to Your Money
Did you know that you can see a quick snapshot of how much you've earned in your entire lifetime by signing into SSA.gov?
You'll want to use this data to compare it with your net worth.
Looking at these two numbers – how much you've earned in your lifetime, and how much you have kept in the form of assets – will take you out of the day-to-day money management details and put you into the realm of “how am I doing financially” Or, “where am I headed financially?”
Or, “what the heck went wrong – seeing how I’ve worked and earned a decent salary these last 10 years and have a Goldilocks’ bowl of “borrowed” porridge to show for it – and how can I change that?”
I’ve worked and earned a decent salary these last 10 years and have a Goldilocks’ bowl of 'borrowed' porridge to show for it – how can I change that? Click To TweetThese thoughts and ideas then trickle down to your everyday money behaviors.
Talk about creating a {positive} ripple effect!
Psst: not very happy with where you are after looking at this? Here's how to get better at managing money, and how to manage money effectively so that you can get more of what you want.
2. You'll Get the Right Amount of Insurance Protection
You know all those insurance protection limits and coverage that gets thrown at you when signing up for auto insurance or life insurance, etc.?
It's hard to know whether to splurge on the $300,000 coverage, or save money with the $100,000, if you don't actually know the amount of assets you have to protect.
Tracking your net worth allows you to keep a working knowledge of how much your policy coverage limits need to be (and when you need to call your agent to adjust them up).
3. What Gets Measured Gets Better
Maybe your financial system and bill paying system feels a little…broken. Rusted. Worn around the edges.
But where are the bottlenecks?
You can’t WD-40 a chain if you don’t know where the kinks are. Or a squeaky door hinge. Or fill in the blank with your favorite WD-40 fix.
Tracking your net worth gives you an idea of what’s working and what’s not because you immediately can see your assets versus your loans, which loans you have and how much, and the general trend of your finances (are they going up? Treading water like a mallard duck on a frozen lake?).
Are you finances treading water like a mallard duck on a frozen lake? Do this. I dare you. Click To TweetAnd when you’re aware, you’re on your way.
Psst: here are a bunch of free how to manage your money worksheets to get you started.
4. It’s SO Much Fun to Look Back and See How Far You’ve Come
Think of tracking your net worth like keeping a money diary.
For the rest of your life, you can look back on different periods of your life and reflect, at least from a money standpoint (which, really, is the root of so much!) how things were going, what was going on, how things improved, etc.
This is a huge plus when trying to reflect on things and progress forward.
Because if you’re anything like me, then while in the thick of things you don’t necessarily feel so hot about where you are. But when you look back over it all through the crumbs you’ve left yourself – facebook photos, scrapbooks, journals, etc. – a brand new picture gets painted.
You start to make sense of older seasons of your life, which helps making sense of this current season of your life a whole lot easier.
5. It Might Actually Make You Feel Better about Your Finances
One way that this changed the way I felt? One year I noticed that even though my savings hadn’t grown very much…my assets had grown significantly.
So, I had spent the better part of several months feeling down about how little progress I had been making financially, all for nothing.
How exactly, if we didn't save that much money, did our net worth actually grow? Glad you asked.
That was the year we paid off the last $25,000 in our combined debts just a few months after getting married.
That’s right; paying down debt adds to your net worth as well (score!).
Okay. You get it. I want you to track your net worth. I hope you do!
6. You'll Know if You're on Track to Retire when You Want to
We all have dreams of retiring – whatever retirement looks like for each of us.
How can we figure out if we're on track to get what we want at the (hopefully) end of a long life, or if we need to change our habits now to get what we want?
You won't, unless you're tracking your net worth.
What you'll want to do is periodically update your net worth (you don't need to do this manually if you have something like Empower's free dashboard, which automatically updates your net worth for you!).
Then, total out the portions that are for your retirement (such as from your 401(k)s, Roth IRAs, etc.), and plug it into a retirement calculator to show you when you'll be able to retire if you stay on the track you're on now.
How to Track Net Worth
Now that I've convinced you (I hope so, anyway) of how important and awesome it can be to track your net worth, let's look at how to actually do it.
There are two different methods you can use to track your net worth: manually by paper, or automatically online.
I've done both – there's no right or wrong answer here. It's only picking the one that works for you!
No matter which option you choose, you are making sure you add up all of your assets, and then subtract all of your liabilities. The answer to this formula will give you your net worth.
Net Worth Formula: Assets – Liabilities = Net Worth
How to Track Net Worth – Manually on Paper
When I say “on paper”, I really mean either with a free net worth tracker printable, or using a spreadsheet like Excel or Google Sheets.
Either way, you're pulling in and writing/typing out the numbers yourself, then calculating everything to see where you stand.
You'll log into each of your financial accounts, and gather your total.
This includes the following accounts:
- Mortgage
- Savings account
- Checking account
- Credit cards
- Student loans
- Loans from family/friends
- Retirement accounts (401(k)s, Roth IRA, Traditional IRA, SEP IRA, etc.)
- Car loans
- Car value (using a site like Kelley Blue Book)
- Home value (using a site like Zillow)
- Annuities
- Bonds
- Mutual funds
- Treasury bills
I did this for about six years, and then six years ago I discovered this next option (and haven't looked back).
How to Track Net Worth – Online
I moved onto the free Empower dashboard, once I found out that you associate each of your financial accounts one time, and then get free, real-time updates to your net worth whenever you want them.
To me, that was a no-brainer. No more gathering my balances from each of the 15+ accounts we have. No more fiddling with all those sign-in's (and, inevitably, having to change my passwords on at least three because I forgot them).
You'll want to read my thorough review on how to use their dashboard for a free portfolio checkup (once you sign up and get your net worth updated).
Now for the fun part – I won’t leave you hanging on getting to be a digi-fly on the page of 477 people’s bank statements. 477 Personal Financial Bloggers are tracking their net worths PUBLICLY (nope – not me!). So go ahead…you know you wanna be a fly on THAT digi-wall.
Amanda L Grossman
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Money Beagle
Tuesday 16th of January 2018
I've been tracking my net worth on a spreadsheet for over 15 years. It definitely is interesting to go back and see the progress over time.
Mrs. Adventure Rich
Monday 15th of January 2018
Tracking our Net Worth has been one of the most impactful strategies for our finances. It helps us stay motivated when we don't have specific "pay off this debt" or "save for x" goals. We can always target growing our Net Worth!