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Your Personal Net Worth:
Tracking Your Wealth

Building Personal Wealth

Calculating your personal net worth is the most important figure you can have in order to get a view of your financial position. Watching over time how your net worth increases is a powerful motivator and true gauge of your progress in building wealth. Therefore this needs to be a regular part of your money management program.

By definition your personal net worth boils down to this:

Assets – Liabilities = Net Worth

Where your assets are basically anything you own that has financial value to it and liabilities are anything you owe. When you subtract one from the other you are left with a dollar figure for your personal net worth (hopefully in the positive).

Because this is a very broad and high-level view of your financial position it is very important to know and keep track of. There are various reasons why you should do this:

  • It sets a starting point for building wealth. If you are in a new city and you want to get somewhere the first thing you need to find out is where you are so you can figure out how to get where you want to go. Same thing here, when you know your current net worth now you know where you are at.
  • It will allow you to set meaningful and achievable goals. Setting a goal for increasing your wealth by 10% in one year is a lot more measurable than saying “I want to be rich” or “I want to make more money this year”.
  • It will allow you to plan better. Because you have a measurable statistic it will give you an objective view of whether you are making progress or not and in turn allow you to make corrections as needed as part of your planning process.
  • It is a powerful motivator. When you track and review your net worth and you see it moving up and increasing, it is a sign you are doing something right.
  • It allows you to define financial independence. I am sure you have heard this term before but what does it mean to you? Now you can say “I would have achieved financial independence when my net worth is $xxx”. The important thing is figuring out what $xxx is for you…

Calculating Your Personal Net Worth

As straightforward as calculating your net worth sounds, what you include as assets and liabilities can get a bit tricky. There are several recommendations on what you should include in each category, you might want to choose based on your situation and judgment but here are the most common options:

Assets:Anything you own that has financial value that is increasing.This is an important distinction because you can include your car and personal possessions (furniture, clothing, etc.) but are those things going to be worth more tomorrow than they are today?...Probably not.

On the other hand things like your 401(k), stocks, investment real estate, the house you live in, etc. will probably be worth more over time.

Things you should consider including: all money you have in the bank, cash, stocks, bonds, mutual funds, 401(k) (vested value), CD’s, money market, cash value of insurance, retirement accounts, investment real estate, vacation home and so on.

You should be careful including or not including at all: motor vehicles, recreational vehicles, furniture, personal property, jewelry, money owed to you (realistically, do you ever expect to get paid back?), precious metals, and any other asset whose value is debatable, is depreciating or is only valuable to you.

Should you include your home in your net worth calculations?

There are many valid opinions for both including and not including your home in your net worth calculations. I have decided to include it because I specifically bought the current house I am living in as an investment. I plan on selling it and rolling those profits into another home worth more. However some people love their house, or it’s paid off and have no intention of moving. It's up to your specific situation on whether you include it or not, just be honest with yourself. Be aware that the majority of the advice out there automatically says to include it and many Americans rely on their home equity as part of their net worth when it might not always be the case.

Liabilities:This one is not so hard, it boils down to everything you owe. Include your mortgage(s), lines of credit that are drawn, any type of loan, credit card debt, taxes, insurance premiums you owe, money you still owe your parents Smiley Faces , etc.

Probably the hardest part of calculating your personal net worth is gathering all the information required and assessing the value of some things. Once you have done that the actual calculation is pretty straightforward. You can do it yourself on paper or a spreadsheet program or use one of the many online calculators available for this [1], [2] .

Also, if you have Quicken or MS Money they can do it for you. However, having been a MS Money user for a decade I found it to be more cumbersome than helpful.

I prefer to calculate it and track it in a spreadsheet. I’ll offer my format just as an example:

personal net worth

...and how I track it over time:

building personal wealth

How often should you calculate your personal net worth?

If you are truly focused on increasing this then it has to be done regularly. You attract what you focus on . So if your focus is increasing your personal net worth then you must keep your attention on it by regularly updating it and knowing where you are at when building personal wealth.

There is a common misconception (in my opinion) that having a high income makes you “rich” but the reality is that true wealth lies in your net worth. I have geared all my financial plans towards the goal of increasing this number because I believe here is where financial independence really resides. Being “rich” is truly secondary and even unimportant when what you are really searching for is wealth and freedom. I recommend you do the same regardless of your income.

UPDATE - Quarterly Net Worth Update

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Calculating my personal net worth Not rated yet
Wow! I really appreciate these examples. Of course my numbers are nowhere near that, but I was able to create my very first net worth report. Thanks. …

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