As we budget, save, grow our income, and practice self-control in spending, it’s important to have a method for tracking progress. After all, if we are indeed working to improve our financial lives, shouldn’t we have a way to measure our improvement (or regression)?
I have a coworker who has turned into a terrific friend and we’ll often talk personal finance in our downtime. He shared with me his primary method for tracking progress in his financial life: Tracking net worth. This was definitely a “light bulb” moment and something I started doing (in November 2012) after we had the discussion.
In summary, you list your assets, list your liabilities, and take the difference, which gives you your net worth. I calculate (actually Microsoft Excel calculates) my net worth every month and this lets me see how I’m doing financially. Increasing the value of my assets or decreasing debts will send my net worth in the right direction. Alternatively, keeping monthly tabs on my net worth lets me see where I might be slipping and hurting my net worth, giving me the chance to correct bad habits.
The following is the Excel spreadsheet I use to track my net worth:
If you would like to download this spreadsheet, click here. The spreadsheet includes some simple formulas, including what percentage each asset comprises of each asset category. Columns F, G, and H detail my net worth history and columns J through P detail what comprises the net worth value.
Categorizing your assets and liabilities can turn into an exercise, as you’ll need to consider whether certain items are assets, liabilities, or both. For example, you could list your home’s equity as an asset, but you’ll also want to list your mortgage as a liability due to it being a debt owed to the bank.
As you keep track of your net worth, I think you’ll find a sense of accomplishment if you’re growing your net worth. This will provide added motivation to steer your financial ship properly. If you’re going in the wrong direction, use this as a tool to help identify what’s driving your loss and what you can do to fix it. Good luck!