Measuring What Matters – Your Net Worth

If you want to know if you’re truly financially successful, you must regularly calculate your net worth. It’s not the only number you need to know –

Increasing Net Worth  >> your investment ROI (return on investments) and

  >> passive income as a percentage of your living expenses

       are both important – but Net Worth is in the top three!


And, it often has nothing to do with perceived wealth. Most anyone with an above average income can borrow enough to fund a wealthy looking lifestyle. So, instead of looking around your neighborhood, comparing your cars or your backyard amenities (yes, we all use google maps to checkout the neighbor’s lots) look at your Net Worth to see how you’re doing.

Building Real, Lasting Wealth

As we know from reading The Millionaire Next Door (required reading for wealth builders), the kind of wealth that leads to financial freedom isn’t ostentatious or very sexy. Sure, you can drive a nice, USED, car and take the family on vacations, but not on credit.

And you can enjoy those fun things when you know your Net Worth is growing faster than your expenses. Now, thanks to the information age and free internet apps, monitoring your Net Worth, income and expenses is easier than ever before.

But before we log into our online tracking tool, we need to be really clear about what Net Worth is; and it’s really pretty simple:

Net Worth = Assets minus Liabilities Track Your Net Worth

So, when we’re clear about what’s an asset (versus an ongoing expense) and what our liabilities really are, it’s easy. Collecting the data on assets and liabilities is where many people fall short.

An Asset is an Asset?

Here’s where my definitions may vary from conventional financial planners’.

Most will list your primary residence (assuming you’re an owner instead of a renter) as an asset. They subtract the mortgage and add the net to the plus side of your balance sheet. I disagree.

We all have to live somewhere and, unless you can and are willing to convert the net value of your primary residence into cash and downsize or become a renter, that’s not a real asset. In fact, the net value tied up in your primary residence is often an underperforming portion of your portfolio and the property itself carries many necessary, ongoing expenses for maintenance and repairs.

Unless you are positive the net asset value of your primary residence far exceeds the potential liabilities (or it earns you income), I suggest we leave it off our asset list. Of course, that means you can also exclude the mortgage from your liabilities, assuming it is less than the gross value of the property.

That goes for your cars too. Unless you know you can sell it for more than you owe, buy a cheaper car to use, and bank the difference (or you’re an Uber driver), I just don’t bother calling a depreciating asset an entry in my Net Worth calculations. That goes for personal jewelry too (just for fun, check the resale value on a used diamond or gold chain); collections or pretty much anything that can’t earn an  income.

Financial assets are easier – investments in equities and debts traded on public exchanges can be tracked in real time. Bank accounts too. Even other, income producing assets, are reasonably easy to value now, thanks to the internet.

And don’t forget to include the future value of pensions and inheritances that are certain. If it would go into probate (or directly to a beneficiary) when you die, it’s an asset.

Liabilities, Honestly

Being transparent about what’s owed can be difficult for many people – even with themselves. If this is your first attempt at calculating your Net Worth, you may find yourself “forgetting” about certain outstanding debts or expenses you’ve committed to.

Afterall, you may say, that student loan is really an investment in my future earning potential! That loan from my parents carries no interest…

It is possible that your liabilities will initially exceed your assets. I know mine did when I first started tracking. I borrowed money to go to school, I borrowed money for a new car to commute to my first job. Had to have “businesslike” clothes for that job too, which went on my department store credit card.

But I hated paying the interest on those loans and so I directed any earnings in excess of my basic living expenses to paying those loans off ASAP! I drove that car for over 10 years. I created a viable career in retail management and then finance from that student loan and I developed a habit of paying off the credit card balance each month (and, before the internet, keeping every receipt and a running total of its current balance).

So, I’m not in the “All Debt is Bad Debt” camp but you must remain honest with yourself about what you owe and what you expect to gain from your liabilities.

Let the Computers do the Calculations

Once you have the statements or the username and passwords for your loans, bank and brokerage accounts, you can start doing the math. Or, you can use one of the awesome personal financial apps now available, at no cost, online.

I’ve been using the PersonalCapital system over the last year and I really like it. Not only does it give me up-to-date Net Worth and Investment balances, it makes tracking expenses and income painless too. No more adding up various categories of expenses. I can easily see how much I’m spending in dozens of different categories. I particularly like that it makes it easy to see my investment income – over any date range I desire.

I had some reservations about security using the online tracking – I never did open a account – but they have proved quite unhackable. Mainly since they don’t have the ability to make transactions, only to download transaction data. Any buying, selling or transferring of funds still takes place at your bank and brokerage sites.

Once you link all your accounts, and make sure the transactions are properly tagged, wah-la: Your Net Worth appears. And, as you develop a history, a graph of it’s ups and downs forms so you can see at a glance how you’re progressing.

What Tracking Your Net Worth Does for You

First, having your Net Worth number handy lets you see how you’re doing relative to your peers. One very common way to assess your progress is by looking at how others in your age bracket are doing. The U.S. Census Bureau regularly publishes this information.

Net Worth by Age2 green


Are you making progress as you age?

How do you compare to others in your income category (percentile)?

Perhaps you’re familiar with the truism: “That which is measured improves”? Humans are naturally a bit competitive. We like to improve things, grow and build. Tracking your Net Worth almost guarantees you’ll begin to focus on increasing yours.

There are lots of moving parts to building a financial fortress that will provide security for you and your loved ones as you age. Your Net Worth number allows you to focus on the big picture instead of getting bogged down in the minutia.

And when you’re familiar with the big picture of Net Worth, you can see when something goes awry and get a jump on fixing it. Maybe your debts have crept up or your non-earned income isn’t increasing as fast as you’d like. The changes (or lack thereof) in your Net Worth give you a place to start a more in-depth analysis and make better financial plans.

Seeing your Net Worth increase provides a sense of accomplishment. Instead of a temporary high from spending money on a new toy, you’ll enjoy watching your wealth grow as you save and invest.

A large Net Worth, and the passive income that you can generate with a growing asset base, can provide the security and peace-of-mind you seek now, and into the future.

Now go, collect those accounts, plug them into and start tracking your Net Worth now! I’m betting you’ll thank me later.

Live Long and Prosper, Leah the

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