The Benefits of Tracking Your Net Worth

The free Personal Financial Planning course on Coursera has begun (there’s still time to join), and the first week’s topic is “Where are you? Where are you going”. One of the activities is calculating your personal net worth.

It may seem like a small thing, summing up your assets and subtracting your liabilities, but I am a living example that it does make a difference. I posted my first public net worth on December 9th, 2004:

Assets: *= pre-tax
-----------
Cash Savings: $54,983
Brokerage (non-retirement) $ 7,808
Roth IRA: $ 2,001
Traditional IRA*: $ 5,383
401k*: $11,000
529: $ 1,097
---------------------------------------------
Total: $82,272

Liabilities
--------------
Credit Cards: $26,522

Net Worth: $55,750

(I had a lot of money tied up in no fee 0% balance transfers at the time, with the money safely earning 3-5% interest in bank accounts.)

Now, I no longer share our raw numbers on the internet down to the dollar, but I still track my net worth privately and update my progress towards financial freedom regularly. I definitely think it made a difference, seeing the benefits of a pay raise or debt payoff. A little over 8 years later, our net worth is many times larger and we plan on paying off our mortgage completely this year. Knowing how you stand won’t solve all your problems, but it may give you a reality check especially if you were like me and exiting college well with a 5-figure negative net worth.

As I’m sure someone wise/rich/famous has said – “If you don’t know where you are, then how do you know how to get where you’re going?”

Or the other classic – “If you don’t know where you’re going, any road’ll take you there”

Comments

  1. I think tracking your net worth (I’ve been doing it monthly for over 20 years!) definitely helps you focus on your long-term goals and keeps your eye on the ball.

  2. I still think you’re nuts for paying off your mortgage at a time in history when you can borrow at 3.5% for 30 years!

  3. @Andy – I think you are nuts for not wanting to pay off your mortgage? Why would you NOT pay off your mortage asap. Once the house is paid for, invest the “Would Be” mortgage payment in a mutual fund each month and bam, you retire a millionaire. I believe so strongly in this, I will give you a scenario. Say you invest and make an market average return of 8% per year. Invest your “Would Be” mortgage payment each month of $1,000 and at the end of 30 years, you would have $1,500,295 in the bank. I would say with a paid off home and that much cash in the bank you could probably afford to retire. Keep in mind that this does not even factor in 401k, Roth, etc.

    Keep paying the mortgage interest if you want…

    Also, you should NEVER get a 30 year mortgage, 15 at most but that is another discussion.

  4. Save the Nickels says:

    I miss your updates on Net worth progress…I track mine, and would compare it to yours to get a very rough comparison, given my perceived similarities in age, income, etc. I miss doing so! Have you ever thought of bringing it back, with less details revealed? I just like to see if I am “on track” relative to peers. For example, are my retirement accounts returning roughly what another person’s are, who I believe has much more financial know-how than me?

    BTW, I think paying off the mortgage early IS smart. You can’t completely replace “Risk” in your returns, Andy, and I think MMB is smart to kill the mortgage – so that 3.5% interest represents a guaranteed 2.5% loss (or so), when you factor in the tax benefit, and depending on ones tax bracket, etc. Plus, it’s a very liberating feeling.

  5. I do my net worth every year around the time of my birthday. I now have an Excel sheet with 10 columns of data, one for each year going back to the year I graduated law school, when my net worth was negative $115,000. Now it’s a positive $90,000 or so. It is so encouraging to see that number grow over time. I try not to obsess about it because some of it (the retirement part) is partly beyond my control — tracking it once a year is about right for me.

  6. Christine says:

    i love using mint.com it shows you your net worth on the home screen when you log in.

  7. I’ve been tracking net worth since college. That was tough because I really didn’t have income coming in, just expenses so each month my negative net worth just kept getting bigger. But then I graduated and had a job and it was motivating to see the negative number decrease each month to a positive number. I had a mini celebration when I turned it positive too!

    It has helped me not buy things I don’t need. I remember sitting on the fence for a while regarding a new car because it would take my net worth negative again. It made me realize I didn’t really need the car.

  8. Thanks for doing your net worth! Due to you, I’ve been tracking mine since January 2006 and have a nice big spreadsheet tracking debt, loans, assets, etc with some pretty graphs :)

  9. Brian, your rationale seems to be arguing for not paying off your morgage early. If your reason to pay off your mortgage is so you can now invest those payments instead in the stock market where you can earn 8% why wouldn’t you also take the extra money you suggest using for paying off the mortgage early and instead put into stocks for an 8% return. You compound interest story works the same way regardless of where the money comes from. Andy recomends starting the compounding process even earlier effectively borrowing the money at 3.5%.

    It basically boils down to would you rather have 3.5% risk free return by paying off your mortgage (although taxes slightly scew this), or would you rather have what has avegared 8% return historically with large risk by putting money in the stock market.

    There’s no right answer, and anyone who says there definitively is is foolish

  10. I’m with Kevin.

  11. Despite blogging for years I resisted the net worth calculation until about 2 years ago….FANTASTIC decision. It has forced me to be conscious about decisions I never would have cared about in the past.

  12. I miss the net worth updates. Was the best part of the blog.

  13. You just re-financed into a 15 year mortgage, is there a reason you are considering paying it off in full now other than because you can?

  14. I am also against paying off the mortgage early. If you can lock into a 3% interest, with the interest being tax deductible, I would actually argue for borrowing as much as you can on your property and invest them conservatively. In the long turn it’s likely the investment will return higher than the benefit of paying off the mortgage early.

    On the other hand, I understand the comfort of paying off the mortgage early. If the premise is that you do not want to take on more risk, I can support using the cash to pay off mortgage early. Compared to the paltry return from CD, paying off mortgage is like getting guaranteed 2.5% return… definitely better than leaving the money in the bank.

  15. For me the most interesting thing in this article is your decission to pay off your mortgage this year. And that’s because I’ve been thinking to do the same thing too but I’m still undecided.
    That would involve selling a good part of my retirement funds in tax deffered accounts.
    Assuming you’d have to do the same can you explain how you’ve reached the conclusion that this way would be more advantageous than keep paying the mortgage at this historical low rates?

  16. Save the Nickels says:

    Why pay off the home?
    - Having 100% equity in one’s home reduces a few burdens (what if I lose my job – how will we/I pay the mortgage?, what if the housing market drops here, and we are “upside down” in the home, but have to move for another job opportunity or to another (better) housing arrangement? What if the s. market tanks 2 of the next 3 years (in those 2 years, say, an avg 8% loss – you don’t have an avg 8% return – so if you were investing instead of paying of the mortgage, you would lose 11% that year, when you factor mortgage interest)).
    Answer this question: If my house was paid off completely — would I take a loan against my house, in order to invest the money into the (return not guaranteed) stock market? If the answer is “No”, then pay off the house first!

  17. I have never calculated my net worth. I have to see how much I am worth. I am with you on keeping it a secret. No one needs to know this information, but you and your spouse.

  18. Mint.com is great for this. It shows you your net worth based on the accounts you’ve attached to your profile as well as any property. Granted, constantly knowing your net worth may have a down side (i.e. obsessing over it), but it’s nice to have it in the back of your head when you’re getting ready to make that questionable purchase. It’s a great option for anyone who cares about personal finance and has taken advantage of a lot of credit card bonus offers (it’s hard to keep track of all those accounts!)!

  19. I think it was smart to quit posting your net worth. You make so much more money than a lot of your readers (like me) that it was becoming alienating. You often saved as much in a month as I can save in a year, and I’m a good saver.

  20. I just started tracking my net worth. Right now I use Mint to see what is going on in a quick view, but I get down to the nitty gritty once a year.

  21. I track my net worth via google docs, complete with long term graph. In my opinion, knowing your net worth helps you keep your financial goals in focus.

    In the spirit of another view point, we don’t have a mortgage. After the kids moved out, we sold everything and rented a small condo. Its all about trade offs. All our discretionary funds go to traveling and fine wine. Not for everybody but it suits us for now.

  22. We’re 13 years into the 21st century guys… Use applications like mint.com

  23. I am with mrlami…use Mint.com. Paying off the mortgage early IS the best decision you could make (IMHO). We paid off a 30 year mortgage in 3 years (that’s right, no typo there, just worked our butts off!) and in the height of the recession I quit my job (because I could!) and found something I loved to do. I did not owe a soul or corporation a dime and had an emergency fund to last over a year. Debt free = best feeling in the world!!

  24. Anyone have a nice clean net worth spreadsheet template with graphs they want to share? :)

    I have been using Mint for years and really like it, but its nice to have your own data stored locally in my opinion (I can’t always get the graphs to show exactly what I’d like in Mint due to various account syncing issues that Mint had over the years).

  25. All really great points for everyone. In terms of paying your mortgage now or waiting, I think everyone has to evaluate their own goals and do the research to find what best suits you. Some people can afford to take a risk- others cant. What might be best for me might not necessarily be best for you. Do your research, take your time, and don’t make a decision until YOU are %100 confident in your move.

  26. FrugalBeing says:

    mrlami & Toni,

    I generally agree with you. But if not Mint you can do it other ways too. Just find the best way that suits your need. I use a spreadsheet complete with graphs to track my net worth.

    BTW, 13 years into the 21st century me and my wife still don’t own smartphones :-) But I’m happy to inform that our net worth is mid 6 figs.

    On the mortgage repayment: my 30Y fixed is at low 3% and I do not want to pay out the mortgage even if I afforded it (I don’t for now). I’m planning on buying a rental property.

    -FrugalBeing

  27. It certainly helps keep your eye on the prize and shows you the value of a sound investment. As soon as you realise that buying property and investing in proven funds is worth it you will do it a whole lot more than spend your hard earned cash on a new watch!

  28. Part of solving any problem is the understanding part. I agree tracking networth is important for anyone who wants to maintain his personal financial health. Doing it monthly is a good practice. Be it precise or even just ball park. Cash flow is the other important thing to track. I personally use the software AceMoney+Excel to track both.

    On the other hand, I’m not sure if I would pay off my mortgage now even if I do have the cash with the interest rate so low. I would actually drag it out and keep the money that you would use to pay off. If you already have the money, I don’t see why you would worry about losing the job and not able to make the monthly payment with a fixed rate.

  29. I will never use mint.com. Giving one entity access to every password for every dollar of my net worth is insane in my opinion.

    Regarding the mortgage I’m currently paying my off over an 11 year period so it will gone by the time my son starts college. With the way we as a country are printing money I also fear high inflation and interest rates in our future so if interest rates rise higher than our mortgage rate I will stop making additional principal payments on the mortgage. It will be interesting to see if savings accounts are paying higher than 3.5% in 5-7 years.

  30. I think it comes down to different style of investing. I am def in the not paying off the mortgage camp. Instead of paying off my mortgage the last 3 years. I took that money and purchased 4 rentals. The rentals covers PITI for all the properties (including mine) with $900 cash flow a month. In 15 years, I will have full equity of all the properties (whatever they might worth) plus thousands of $$ in rental income for retirement. I think this is the best of both worlds because my mortgage is being pay by someone else, any savings can be invested else where to diversify.

  31. I use mint for somethings, but it isn’t particularly stable in my opinion and particularly historic data gets all messed up with regularity. I use is as an activity monitor but my new worth is in excel (well its moving to a google doc for cloud access). I have solid data going back to 2003, with a few old dusty spreadsheets back to 2000 or so.

    I don’t bother with graphs though. I like cold hard numbers.

  32. Tyrone Biggums says:

    I’ve been tracking my savings every month since Jan ’10. My only regret is not starting earlier.

  33. For, the most interesting part is that you were able to pay off a 600K house without issue in under five years at the ripe age of 35.

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