How To Determine And Track Your Net Worth
Proverbs 24:3-4 – Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches.
Today is the last day of the month for July and as I do every month, I spent the morning updating my net worth. If you aren’t tracking and updating your net worth, I would highly recommend you do so. It’s a great way to monitor the overall progress of your finances. As Proverbs 23:3-4 says, through wisdom and understanding your rooms shall be filled. Tracking and managing your network will provide you with both wisdom and understanding to deal with your finances better.
What is Net Worth ?
Your net worth is basically your total assets – your total liabilities. Assets are things like your home, cars, cash in your bank accounts, stocks, retirement accounts, etc. Liabilities are things like your mortgage balance, car loans, credit card debt, and
401k loans (see comment section below).
I like to think of net worth as the amount of money I would have (or owe) if I sold everything I owned except the clothes on my back and payed off all of your debt. My net worth would be the money I have remaining.
Determining/Tracking Your Net Worth
I track mine using a simple Microsoft Excel spreadsheet. I update it monthly on or around the last day of the month. I also graph mine so I can see a more visual representation of my net worth. If managing your own spreadsheet is more than you want to deal with, I recommend you use Networth IQ. It’s a website that tracks, graphs and allows you to update your net worth easily. It also allows you to share and compare your net worth with others in your age and salary range so you can see how you line up.
List your Assets
I first list off all of my assets and place their value next to each of them. Some suggestions for determining value:
- For your house, use those weekly sales summary listing that come in the mail from various real estate agents. Take all of the sales in your area and determine the average value per square foot (sales value/square foot) for the homes that sold. Next, multiple that by your home’s square feet to come up with an estimate. You can also call a local real estate agent and have them do a free market value estimate as well. The Dough Roller also has a great listing of websites where you can look up your home’s value.
- For your car, use Edmunds or Kelly Blue Book. I prefer Edmunds, but either will work.
- Your employer should have a website or phone number for obtaining the current balance in your 401k. Make sure you only claim your vested amount, otherwise you will skew your net worth incorrectly.
- Of course you can determine your current account balances by logging into your various banks online banking systems.
I don’t include personal items like furniture, clothing, and other stuff. It’s just too difficult to determine the overall value, so I just leave those out.
Once I have listed the assets and their values, I total the value up under Total Assets.
List your Liabilities
I then list off and total up my liabilities. Liabilities should include any debts you owe to other companies or people.
It should also include any debts you may owe yourself such as 401k loans. Again, next to each liability, list off the amount you owe on each as of the day your are doing the update.
Your Net Worth
You net worth is simply:
Net Income = Total Assets – Total Liabilities
If you have a lot of liabilities, it’s quit possible your overall net worth may be negative. Again, I update mine monthly on or around the last day of the month. Some others, such as Trent over at the The Simple Dollar update his weekly. I have also read that some update theirs only once or twice a year.
What Should Your Net Worth Be?
There really is no right or wrong answer as to what your net worth should be. There are many ways to determine this, and many different opinions about how to determine this.
The calculation I use is from the The Millionaire Next Door by Thomas J. Stanley and William D. Danko. If you haven’t read this book, you need to. It was a life changing book for me. Based on the The Millionaire Next Door you determine what your net worth should be as follows:
Target Net Worth = (Your Age * Your Pretax Annual Income) / 10
The glblguy’s Net Worth
Hate to disappoint you, but I’m not going to tell you what mine is, but I will share my updates for July and I’ll tell you I’m a long way off from what my net worth should be:
- My overall Net Worth is up 44%. This is a huge jump, and due to me under valuing my home. I spent a lot time this month researching local sales and we had a real estate agent do a fair market analysis.
- Our overall assets increased by 9% due to the increase in our home value.
- Our overall liabilities decreased by 1%
We weren’t near as aggressive on our debt this month due to some unexpected expenses and purchasing a number of items at an auction. We should recover this next month through sales of the items on eBay and those proceeds will go to paying off our debt.
Do you maintain your Net Worth? If so, what tools do you use? How often do you update yours and how to you determine if you are on-track?