How I Increased My Net Worth by $70K with One Click! - The Broke Professional

How I Increased My Net Worth by $70K with One Click!

Where have you been all my life??!!

Where have you been all my life??!!

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.

Another Change

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!

Takeaways

-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.

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Comments

  1. I keep track of my net worth manually as well on a quarterly basis. It makes it simple to quickly look over multiple quarters of data and I get more significance when I actually type the number instead of casually looking at it online in Mint or Personal Capital.

    • You’re right when I was tracking electronically I would check my new worth a few times per month, which is not a productive act. It’s much better used to take a long view of your finances. Thanks for the comment.

  2. I have a few friends who track everything manually and I see the value to it. Although I have been too impatient to try it as of yet, I may give it a go.

    And I think including your home in your net work makes a lot of sense. However, according to Rich Dad Poor Dad you don’t necessarily want to count it as an investment.

    Thanks for sharing!

    • Yeah I know exactly what you’re talking about from Rich Dad Poor Dad that is why I didn’t include my home in my net worth until recently. But a home is actually more liquid than a retirement account, for example, which everyone includes in their net worth calculations. When you sell your home, you have cash in hand that you can do what you want with, so that’s why I include it in my calculations now.

      • If you want a better reflection of the “cash in hand” you will have when selling your home, make sure to deduct at least 5% to account for selling/closing costs – this will give you a better picture of how much your home should contribute to your net worth if you choose to include it in your definition/calculation of net worth.

        Also, I appreciate the point you are making with a home being “liquid” relative to a retirement account given the early withdrawal penalties and tax consequences of tapping your retirement accounts but you still need a place to live and it would take at least 30 days to cash in from the sale of your home – and that is assuming EVERYTHING goes according to plan. A phone call to your retirement account could bag you the money in your bank account same day with a wire transfer (albeit after hefty deductions and penalties are scalped off the top). Not exactly apples to apples comparison.

        • I thought about this some more – and realized a question may come up for taking a haircut on your retirement accounts in your net worth calculation similar to what I am suggesting with your home (5% haircut minimum to account for selling costs). I think the difference is the 5% haircut is a requirement before receiving any cash for the sale of your home whereas if you wait long enough on the retirement accounts (which I assume most people would do given the purpose and nature of the account) there would be no haircuts needed. That is why you would haircut your house in your net worth calculation but not necessarily your retirement accounts. Does that make sense or am I missing something?

          • Great point that does make sense. But it all depends because if you wait until eligible age to take out money from a 401k, for example, you’re still going to be paying taxes on it. So Uncle Sam makes the haircut there. Personally, I think considering tax implications and selling costs etc. might be going to far into the weeds for me. The important things for me regarding net worth is to make sure it keeps increasing over time.

        • You’re absolutely right about taking into account selling and closing costs. They can be a pretty decent chink in some cases. But I guess that’s the cost of doing business. At least you get to roll that money into another property without paying any taxes.

  3. The recent market plunge forced my net work down, so I’m trying not to look at the moment. With that being said, we track most things on Personal Capital. I like having all of our financials in one place.

    • Ha yeah same here. I think it’s a good lesson to make sure you have at least some liquid money and to make sure you’re not so highly invested in stocks towards the end of your working years.

  4. Great title! 🙂

    I used to manually track, but no more thanks to technology. Might be dangerous!

    But, I guess one of the easiest ways to track net worth is to write a post about it every year at least!

    Sam

    • Ha thanks. Yes I wanted to sound sincere with that title, but not too sincere. I still find it helpful to track my investments with Personal Capital, but since they don’t link with the company who services my student loans, I’d rather do it manually for now.

  5. Cool blog and good luck with increasing your net worth.

    Only thing I’d add is that 401k is actually more liquid than a home. You’re just going to be paying the 10% penalty. A home is only more liquid if you’re in a hot market and can get the price you want quickly. One solution is to make a killing in the 401k, sell your home, and then move to a non state income state for a year, pay the 10% penalty, and then move back. Cheers.

    • Thanks for the comment. You’re right a 401k is definitely more liquid than a home in that regard. I guess what I should have said that if you liquidate your 401k early, you won’t get what it’s worth due to penalty. Interesting strategy with moving to a different state. Guess that’s why people love moving to Florida!

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