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What is net worth and how to track it?

I started tracking my net worth at the end of 2018 and since then I updated it about 28 times. It has been very useful to me and in this post I would like to encourage to start doing it too.

What is net worth?

Net worth can be defined as your assets minus liabilities.

Here are some examples of assets:

  • cash
  • stocks
  • house
  • expensive items, e.g. a car, a horse, a boat
  • debts other people have to you

And now some examples of liabilities:

  • car loan
  • student debt
  • mortgage
Net worth shows your overall financial picture and the changes in the net worth show you if you are on the right track. For example you could see that you accumulating wealth or getting deeper in debt.

Why track it?

If you start measuring something regularly, you will  instinctively try to make that number go up. You might end up thinking twice before blowing money on an impulsive purchase or tweaking your budgets so you can save and invest more.

And since to track your net worth you need to log into all of your accounts, you will be much more on top of them. Couple years ago, my accounts were a bit of a mess, there were some I lost my credentials to log in and didn't know what was their balance. There was one that was a joint account with my ex, there was one in a country I lived only for 3 month. I cleaned it all up before taking out my first mortgage, but they caused me plenty of stress. For example my lender wanted me to do a credit check in UK because of that stray account and that was difficult to do. I assure you, having only the accounts you actually need and knowing exactly what is going on with them is much better. Additional benefits are that you will be able to avoid unnecessary fees if your balance gets negative due to recurring fees and even spot potential fraud early.

If you asked me 4 years ago by how much will my net worth change in next year I would have no idea. Now I can confidently predict the range where my net worth is going to be in a years time. This is very helpful if you have financial goals such as financial independence or saving enough to start a business. I also understand where the money went much better. E.g. what have I done with those 20k Euro of stocks I sold.

To sum up, regular net worth tracking:

  • shows the financial progress and motivates good habits
  • ensures that you are on top of all your finances and accounts
  • helps you realize the trends and understand where you money went

How to track it

All right, now we know what is it and why to do it, let's discuss how to do it.

You don't need to be an accountant to do this. All you need to calculate your net worth is to list all assets (positive values) and liabilities (negative values) and sum them up. Alternatively you can list liabilities also as positive values and instead of adding them to the assets you can deduct the sum of all liabilities.

There are apps that can help you track your net worth on the American market, but you really don't need that, you could do it in a paper notebook (but a spreadsheet is better, because it does all the summing for you!). Personally, my situation is a bit complex - many accounts, real estate and so on and even if there was a perfect app that would handle my complex situation, I would most likely not use it. The reason is that I wouldn't like to share all my credentials with some app, because that could increase the risk of getting my accounts hacked.

I believe that the most practical approach is to manually log in to all your accounts on regular basis add them to a spreadsheet. I like to use Google Sheets, because they are free to use, work very well and you can access them from anywhere. But you could use Excel or Libre office. When it comes to what to put in that spreadsheet,  you don't have to be a spreadsheet wizard, it can be really simple like the one below.

net worth tracking spreadsheet for personal finance
Simple Net Worth tracker spreadsheet

But if you want, you can also make it more complex and customize it to your need. Here is a simple spreadsheet that can get you started.

One tip I have for you that I haven't seen mentioned anywhere else is to add a comment column to give yourself some context. For example if you move bigger amounts of money around or have some big expenses (e.g. home renovation). In a couple of months you might otherwise forget and have trouble understanding what happened to your finances back then.

How often to track your net worth?

I recommend that you track your net worth on the same day each month, because most of the bills are monthly or yearly and in Europe people are usually paid monthly. If you measure your net worth one month on the first and another on 23rd, you might get quite different numbers because of the timing of when your bills are paid. So to eliminate that noise it's best to measure it more less on the same day of the month. Personally I would calculate my net worth between the 1st and 3rd of each month. This is after I am paid and after all my automatic transfers happen.

There are some people who would measure their net worth every day, but that is definitely extreme and would be very time consuming! On the other hand doing it once a year or once a quarter would likely be too infrequent, however it would still be better that not doing it at all. If you skip a month or two don't worry, just pick it up again, it won't matter over long term.

Observations from tracking my net worth

I am always curious about how my net worth has changed within the last month, so I generally haven't had problems with sticking with that habit and as I mentioned earlier there are many benefits of it. Are there however any downsides or things that aren't great about it?

I mentioned that it helps you measure the financial progress, however it's not always up, even if you do everything right. And that can be a little frustrating. For example when stock market crashes or dips, or the currency exchange rate changes, you might end up being worth significantly less than you were last month.

On top of that, there are some issues that will make it even more imperfect:

  • You might literally forget something or enter it wrong
  • Not accounting for including capital gain taxes or exit tax on gains
  • When you have illiquid assets you will be using approximate valuations (e.g. how much do you think your house or car is worth now might be unrealistic)

So, the actual net worth might be actually lower or higher than the one you calculated. 

However even if it's just an approximate net worth I think it's still a great indicator. So, go and calculate your net worth and increase your financial awareness! Have you done this in the past? What was your experience? Please comment below!


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