It has been a long time since I wrote about net worth (2 years!!).
Looking back at that awkwardly written article, my views on net worth have changed a little since then and I started doing something big when it comes to my own net worth: actually tracking it!
Automatic or Manual?
Tracking your net worth is important because it gives you a look at how you’re doing with your finances over the long term. Just like any business wants to see that profits chart trending upward over time, you want to see your net worth trending up too.
I’ve checked in on my net worth from time to time, but never as a regular exercise where I could actually gain some useful information from. I started tracking it regularly a year or so ago.
Many bloggers recommend using websites like Mint and Personal Capital to track their expenses and net worth. With these sites you link your accounts (checking, savings, loans etc) and they will give you one handy place to look at your income, expenses net worth.
While both of these websites are good in their own ways, they ultimately didn’t do it for me when it came to tracking net worth.
I gave up Mint a few years ago because it was becoming a chore to properly categorize all my transactions and it wouldn’t automatically update some of my student loan accounts.
I then switched to Personal Capital and have actually been using it for a couple of years to track my net worth and it worked great. But again there was an issue with some accounts not updating and it wasn’t able to link to one of my student loan accounts.
So then I took the (relatively) drastic step of figuring out my net worth by hand. Or by keyboard. And it has made all the difference in the world. While logging into my various accounts and noting down the net worth is more time consuming than just having a robot do it, I do find some advantages from manually calculating my net worth:
- It gives me a better overall impression of my financial situation.
- I can pick up any mistakes. Since doing manual entry 3 months ago, I have found a checking to savings transfer I forgot to make and a transfer issue with my 401(k).
- I don’t feel compelled to check my net worth often. Because it takes some time to do this, I simply dedicate one day per month to figuring out my net worth, which I feel gives me a good picture of my finances. When I was doing my net worth with Personal Capital, I would find myself wanting to check it every week or so, which is an exercise in futility.
- It just feels satisfying typing numbers in a spreadsheet and seeing where you stand. You should try it sometimes.
So now that I have extolled the virtues of manually calculating my net worth, what’s all this about increasing my net worth by $70K with one click? It’s pretty simple.
My definition of net worth changed.
For the longest time, I never really considered home equity as part of a net worth calculation. I strictly thought of net worth as the difference between money you have in any type of account and any outstanding debts.
I’m not really sure why I never factored in home equity. I guess I thought because a home can be difficult to sell and equity is so illiquid, it doesn’t need to be part of my calculation.
But you could say my time as a homeowner has “matured” me. I’ve been a homeowner for 3 years now, but only recently did I start including my home value and mortgage as part of my net worth. To be honest, a home is more liquid than my 401(k), since I can’t really touch my retirement money until about age 60.
And once I included my home value as an asset and my outstanding mortgage as a debt, my net worth shot up by about $70,000 and finally brought it into the positive range. Take that student loans!
-Tracking my net worth manually once a month has been a very enlightening and fulfilling task compared to having a computer calculate it. I will keep up this practice for as long as I can to get a better idea of where my finances are going (hopefully up!!)
-Net worth is your assets minus liabilities. I’ve decided to include my home value and outstanding mortgage in that equation, but you might not want to.
I’ve seen people include their cars and furniture in their net worth, but I don’t think I’d ever do that. Technically, you can sell your body (and your soul) for a lot of money, so should you include that as well? I’m satisfied with just including my house and mortgage at the moment.
-There are tons of great net worth programs and spreadsheets out there. I got mine from a finance blog which I can’t remember for the life of me, but just search around and find a method that works for you.
-Net worth is an important number, but it’s not as important as making sure it’s trending up over time instead of down.