Step 1 – Start Tracking Your Net Worth

by | 06Aug2017 | Steps to Financial Security | 3 comments

The first step toward financial security is to start tracking your net worth. Luckily, there are websites and apps that make this automatic and do it for you.

What is your net worth? Simply, it is the value of everything you own minus everything you owe:

Net worth = what you own – what you owe

Things you own might include bank accounts, investments, real estate, businesses, and anything else with a tangible value. Typically, people do not include material items that are decreasing in value (depreciating) like furniture, clothing, cars, computers, etc.

Things you owe might include loans, credit card balances, mortgages, and anything else that causes you to owe someone or something money.

How can I easily track my net worth?

While this can certainly be done manually on paper or utilizing a spreadsheet, technology makes this easy. I’d highly recommend two websites/apps I have personally used, Mint and Personal Capital. Once you sign up and load all of your account information, both will automatically track and update your net worth.
Personal Capital Logo - www.personalcapital.com

While I have used both, I currently use Personal Capital because it has more robust investment analysis tools than Mint. In my opinion, Mint is more focused on those who what to examine their spending and budget.

There are a few downsides to using these sites/apps. First, you have to load your usernames and passwords for all your accounts, placing all of this valuable information on yet another site that could get hacked. Both sites use modern encryption technology, so this is not something that keeps me up at night, but it is something worth noting.

Second, both sites are not in business to help you for free. They are trying to make money, and the way they do it may bother you. In the case of Mint, there were lots of “targeted offers” when I logged on for credit cards and bank accounts that they were recommending to me. These were easily ignored.

In the case of Personal Capital (which I still use, unlike Mint), they periodically contact me via e-mail and phone to try and

Mint.com Logo

get me to use their financial planners. For a do-it-yourself investor like me, I have no interest in this and, again, it is easily ignored, but it might annoy some. I find their website/app so useful, though, that it is worth it.

Why are you tracking your net worth?

Because you manage what you measure. Measure and track your net worth, keep it in mind when you make financial decisions, and your net worth will increase, which is the ultimate goal!

For example, by tracking your net worth you’ll see that when you purchase things your net worth goes down by the price of whatever you purchased. The only time spending money does not hurt your net worth is when you are investing, not buying depreciating items.

I’m just curious…what should my net worth be?

Everyone’s situation is different, but one formula from a book that everyone should read, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, to estimate what your net worth should be is:

Your age x your annual income ÷ 10 = your target net worth

For example, if you are 25 years old and make $40,000/year, your net worth should be approximately $100,000:

25 years x $40,000/year ÷ 10 = $100,000

Keep in mind that this is just an estimate, but it can be helpful to give you an idea of whether you are ahead of the game or behind the power curve.

Next up: Step 2 – Get Properly Insured

Personal Capital

3 Comments

  1. Gene Lujan

    I’ve been looking for an easy way to track net worth across multiple accounts. How well does Personal Capital work with TSP and USAA?

    Reply
    • Still In

      No issues at all. I have both my accounts plugged into it without issues.

      Reply
    • Adrian

      Gene,

      It works quite well. I use it to track all my investments — spread across a variety of institutions: Schwab, TSP, USAA, and NFCU. I get real-time feedback (unnecessary, but so ego-syntonic) on the performance of my investments without any glitches.

      Cheers,
      Adrian

      Reply

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