There are a lot of tools out there to help you track your finances.
Most arrived after I started working (I never got into Quicken) and after I started tracking our net worth, so they are useful but they aren’t my “core system.”
For that, we use an old fashioned spreadsheet. 🙂
Our Net Worth Record is the first document in our family’s personal finance “binder” (the second is a word document I call a Treasure Map).
Table of Contents
Why We Track Our Net Worth
There are two reasons – to track our progress and to enforce a monthly check on our finances. It helps keep me sane when the world seems crazy.
(as an aside, it seems that on a daily basis I read horror stories on Reddit’s r/personalfinance forum where someone learns that for the last X years, his or her investments have sat in cash or some equivalent because they weren’t checking in on them – check in!)
Our Net Worth Record, as the Excel file is titled, is our financial dashboard. In seconds, I see a snapshot of our financial situation from the amount of cash we have on hand to the performance of investments the last month.
More importantly, I can leave notes each month to put it all in context when I read it later.
It dates back to June 2003. That was my first month of full-time work, when I had a net worth of $8,745.69 ($4,519.44 of which was in a Roth IRA I started in college). Northrop Grumman just deposited my first paycheck and my signing bonus, which accounts for the other four grand. Without notes, I wouldn’t have remembered something from over 12 years ago. 🙂
It’s fun to watch the progression over the years (I’m a self-admitted numbers geek) and that’s one major reason for the document.
Since I update it monthly, I must log into our financial accounts to collect the numbers. When I log into each account, I review the transactions for the last month. Anything suspect is immediately obvious because I check in each month. I’m not seeing a 90-day old transaction and wondering what it was for, everything is within the last thirty days.
I use Personal Capital to help track our net worth, it’s one of my favorite tools and a great alternative to older systems like Quicken. It collects the data for me so I don’t have to log into each account separately. This saves me a ton of time each month while still letting me analyze all transactions. I don’t miss logging into each account and I love all the analysis tools it gives me to know if I’m saving enough for retirement. Best of all, it’s free.
Finally, it’s important to have a list of all of your financial accounts. This record is that list for us.
What Goes Into Our Net Worth
Every number gets included, from the value of our home and cars to bank statements.
Why do I include home value? Including home value is a big debate in some circles but it goes back to why I’m tracking our net worth – it’s to give us a snapshot of our situation. I set the value of our home at the purchase price and I include our mortgage as a liability. I opted to set it at purchase price for simplicity, but here are a few other ways to value it.
As we’ve made improvements to the home, I’ve added those to the home value so that it roughly estimates our tax basis. This will be useful when we sell the home so we take advantage of the home gain exclusion.
If you were to include one and not the other, it would mess up your numbers. Include a liability with the asset you purchased and the numbers look lower than they should. Include home value but not the liability and the numbers look bigger than they should.
The same goes for cars and other non-income producing assets, which people often exclude from their net worth.
We don’t “mark to market” the value of the home. Unlike stock market investments, which you can sell “immediately” for the market price and a small commission, our home is the reverse. You can’t sell it in an instant for a small commission, it takes about a month and a few percent and the price depends a lot on local factors.
Given all those variables, re-evaluating your home’s value, up or down, doesn’t help and is a waste of time — so I don’t do it. I will include improvements but I don’t make changes based on the “market.”
We do update the value of our cars. Since it’s constantly going down and the market is somewhat more liquid for vehicles, we include the slow decline in the value of our cars. I only include a car if it was purchased within the time limits of the Net Worth Record because of continuity… and this actually means we only do it for one of our cars.
For the car’s value, I just use the Kelley Blue Book Trade-In value for our car at the start of the year for the entire year. I don’t check it each month, there’s really no point to that level of specificity. Ain’t nobody got time for that.
What Doesn’t Go Into Our Net Worth
Credit card balances do not get included. Since the credit cards are paid off in full each month, the balances are reflected in our bank accounts with each payment. I don’t mind the one month lag.
I still log in to look for fraudulent transactions (and I get transaction notifications) but I don’t record balances.
This means that our net worth is slightly inflated because our credit card balances, which should be a liability, are never and never included.
I don’t record “petty cash,” or cash that we have in our wallets. It’s generally going to be small and not impactful, so I don’t bother to go to that level of detail.
There’s no single right way to calculate your net worth, just your way. Just a way that gives you the information you need.
When you weigh yourself, do you take off all your clothes? Do you wear the same thing each time? Do you disrobe at the doctor’s office when they weigh you? Jeans are heavy. Your clothes weigh a few pounds and increase the end number… but do they make a difference?
It’s the same with net worth.
You can track different versions for different purposes. For example, we track our liquid net worth, which is my estimate of our net worth if we converted (“liquidated”) to cash and cash equivalents.
Do you track your net worth? If so, how? What do you include or exclude, and why?