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Calculating Net Worth – The Quarterly Update  




Calculating net worth is a key part of personal finance management. In a previous post I detailed how I calculate net worth. Knowing your tangible net worth is important but the real benefit comes when you track it over time.

The initial calculation gives you an idea of where you are at. But the periodic tracking is what tells you how you are progressing towards your financial goals.

I calculate net worth on a quarterly basis (or at least that is the intent Smiley Faces). I did my last number crunching at the end of October and considering the current economy I was pleased with the latest results.

To briefly recap, calculating net worth is a function of adding up all your assets and subtracting liabilities.

Assets for me included getting the latest statements from all the financial institutions where I keep money. This is especially important for any investments since I want to know what is the current amount of shares owned and the market price.

For me assets are divided in four categories:

  • Cash in checking, savings and money market accounts
  • Stock market investments: individual stocks, mutual funds, bond funds, 401k
  • Real estate: my best estimate of current market value. As you can imagine this is very tricky in this current real estate market. But since I spend so much time doing this I used honest assessments of current market values not what I wish it would be. For some properties I have current appraisals so I used those. For other properties I actually used lower values than 3 months ago to account for current conditions.
  • Personal property: I place little weight on this category because much of this (cars, furniture, personal stuff) is something I would have a hard time liquidating and whose dollar value is highly variable.

Then I add up all my liabilities.

In liabilities I include what I owe in car insurance and property insurance for only one property. I only count this for one of the five properties I own because that property has no mortgage on it, therefore I am responsible for paying taxes and insurance on it rather than it being collected through an escrow account in a typical mortgage.

Since I have no car payments, credit card debt or any other loan or consumer debt the bulk of my liabilities is composed of the mortgages I owe on my investment real estate.

I use a spreadsheet for calculating net worth where I plug in the assets and liabilities and it gives me my net worth. You can see the format I use here all I do is put in my actual amounts.

Drum roll please…

The results were pretty uplifting considering the beating my stock market investments have taken and even the lowering of value of some of my real estate:

  • Net worth is up 9.3% from last quarter.
  • Net worth is up 9.1% from the same time last year.
  • This gives me a cumulative net worth increase of 8.2% since September 2007 (when I first started tracking my net worth)

Calculating Net Worth: Analysis

Digging a bit deeper into why my net worth is up I noticed the following things:

  • My stock market investments are up 10.7% from where they were last quarter. This is mostly due to the overall recovery we have seen in the stock market in the second half of the year. Now, I did get pummeled the first quarter of this year so I still have about 15% to go before they get back to where they were prior to the end of 2008 Smiley Faces.
  • My real estate investments are up 5.8%. Considering the decline in value of some of my properties this is good news. Part of the reason for this increase is the acquisition of house #2 and #3.
  • Cash holdings are up 238% for two reasons. First, I liquidated some investments that were not performing well so that cash is going back in the stock market as soon as I make a choice where to put it. Second, it takes into account the profits from the sale of my first house flipping deal. Again, this is money that needs to be re-invested.

Hopefully you can see that I use my numbers to give you an example of the usefulness of calculating net worth. When you know your tangible net worth you can analyze it in a similar way and this will help you in making future financial planning decisions, serve as encouragement and improve your overall personal finance management.

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