How to track your net worth
Your net worth is your assets minus your liabilities, expressed as a dollar amount. In other words, it’s the ratio of the total amount you own compared to what you owe in total debt. Tracking your net worth is measuring how much it changes over time. Most businesses look at net worth on a monthly, quarterly, or annual basis. Individuals can do it as often as they like.
After conducting the exercise in this article, you’ll probably want to find the fastest way to pay off debt. Some consumers, when doing this for the first time, realize their net worth is in the negative because they’re spending more than they earn. That’s a situation you’ll want to correct as quickly as possible. Start with this simple four-step process to track your net worth for the first time and in the future:
Step #1: Add up all your assets
One way to do this is on an Excel spreadsheet or Google doc. For something more sophisticated, look for net worth tracking or personal finance apps on your phone. Check the user reviews and number of downloads on those first if you’re going to use them. You’ll find that a select few are vastly more popular and reliable than the others.
The value of certain assets, like automobiles and jewelry, will need to be estimated or obtained by appraisal. Don’t worry about exact values when you do your first run-through on this. Just make sure you’re within the correct range. Include the following:
- Cash in your bank accounts
- Value of your investment accounts
- Your automobile
- Fair market value of your home
- Business assets
- Cash value life insurance
You can also include personal property like jewelry, artwork, or antique furniture, but make sure the value you put down is what you can sell it for, not what sentiment tells you it’s worth. Items like baseball cards and comic book collections have speculative value today, but they could be worth next to nothing in ten years. Leave those off the list for now.
Step #2: Add up all your liabilities
Liabilities are your debts, so include mortgages, auto loans, credit cards, personal loans, and student loans. The twenty bucks you borrowed from your buddy doesn’t count for this list, but you should pay him back as soon as possible. If you’re using a spreadsheet for this, list the liabilities below the assets, not side by side. That will make them easier to track.
Step #3: Subtract your total liabilities from your total assets
This is where the magic happens. At this point, you should have both totals available. Subtract the total liabilities from the total assets. If the number is positive, you’re bringing in more than you’re paying out. If the number is negative, your net worth is zero, and you need to make some changes. Look for debt relief options and stop using your credit cards.
Step #4: Schedule a review
Choose a date that’s a month away and schedule a review of the data you’ve compiled here. Your assets may not change much unless a substantial amount is in investments, but your liabilities should go down if you curb your spending and pay at least your minimum monthly bills. As those liabilities decrease, your net worth will increase. Track it every month to see your progress.