[[ This post is sponsored by The Dad Wallet. Barnabas runs an IT consulting company and has a huge passion for giving and helping others. He is super helpful and has generously given me some great advice for growing my own IT consulting hustle. He and his wife work with Destiny Rescue, which is committed to rescuing children trapped in the sex trade. Seriously, go check him out. ]]
A new reader requested this post topic, so I know this will be useful to someone. That makes it instantly worth the time of writing, documenting processes, and editing, etc. What’s even better, is this post comes with its very own spreadsheet tool that you can use!! Phat lootz.
Do you have any questions you’re curious to have answered? Email me at firstname.lastname@example.org, and I’ll probably write a post just for you ^_^.
Why not use Personal Capital, YNAB, Mint?
I’m a user of MANY tools, from online and mobile apps to offline excel sheets. I use Mint for budgeting, and I use Personal Capital for net worth tracking. If you’re a Mint user already, check out Personal Capital. I think it does a lot better job on the reporting side.
However, if you’re like me, nothing (not even these tools) can replace a good old fashioned spreadsheet. Here’s the other thing I worry about:
What happens if they lose my historical data? Man, that would suck. I also like the fact that, if they don’t have it, I can typically create it. So, there’s my little spiel on why I still use a spreadsheet, and why you probably should too.
If you don’t currently track your net worth, no big deal.
It’s not a competition nor a race, though many people can fall into that game.
Here’s the thing: your net worth is only one piece of the puzzle.
So you have $600,000 net worth, big deal. What are you going to do with it? It’s not nearly enough to retire on. Actually, for most people, it’d barely be half of what you’d need to retire and use the 4% safe withdrawal rate.
Wanna know a quick way to figure out what you’d need to retire? Try this:
Figure out the amount of money you think you could get by on, per year. For my state (South Carolina), I think a frugal, debt free family of four could make it by on $50,000 per year.
Now, multiply that number by 25 :
$50,000 * 25 = $1,250,000
So, that frugal, debt free family of four would need $1.25 million in order to retire and withdraw 4% ($50,000) per year. This assumes a few things align with historical averages, like stock market growth and inflation rates. But the general idea is that you withdraw at a specific rate while your nest egg continues to grow at a (mostly) higher rate.
So my point is: don’t put a ton of “stock” into your net worth (or anybody else’s). It’s not that important until it’s a lot larger (mine included).
The real magic is in flexible and passive income. Want to see how flexible and passive income is helping me chase my dreams? Check out my latest income update:
How is Net Worth Calculated?
Here’s the basic formula:
Assets – Liabilities = Net Worth
So, let’s take a basic example below. Notice that your total assets include any item which is either cash or can be sold for cash. In this example, it’s the money in your checking/savings, the value of your home, the value of your car, and your 401k. These “assets” have a total value of $300,000.
Your total liabilities include any claim that you owe someone money. In this example, your student loans, mortgage, credit card, and car loan all represent “liabilities”.
After some basic math, you can see that your net worth is $100,000! Not bad!
Why do I need to subtract my “liabilities”?
Wouldn’t it be awesome to simply take the $300,000 figure, call it your net worth, and be done with it? Well, why can’t you?
Most of you already know, but if you bought an asset with the help of a lender, you don’t own that asset. You borrowed money and gave that money to the seller. So, while you have the asset in your possession, the lender has a lawful claim to your asset until you pay that loaned money back.
In most cases, the lender holds the `to your car and will remove themselves from the title and send that title to you once you pay off your loan.
Think about how awesome it would feel to open the mailbox and find the title to your car. Better yet, how about having your title from Day 1? Totally doable.
Until then, you’ll have to keep subtracting your loan amount from your car’s value in order to get the actual net worth of your car.
Tools Needed to Calculate Your Net Worth
In order to follow along as you learn, you’ll probably want a spreadsheet and some formulas. Oh, and you might want to start tracking your net worth over a period of time (i.e. from now on) and chart your progress on a sweet graph.
You can make your own, OR you can download the one I made for ya. Scroll down a bit to sign up for it.
Here’s what it looks like:
Here’s this sweet ass chart you can use to watch your growth over the last 12 months:
Pretty nice, right? Sign up below to grab a copy:
Calculate Your Net Worth – Step-by-Step
The rest of this post assumes that you’ve already downloaded my spreadsheet, or you’ve taken the time to acquire or create your own.
General Excel Tip: Inserting Rows
You can insert as many rows as you need by right clicking on a row number and clicking Insert. A blank row will be inserted right above the highlighted row.
Step 1. Fill out the Cash section
Fill out all of your checking and savings account balances here. This would include flexible spending accounts or health savings accounts.
You can represent the data however you’d like, whether that’s one row per bank or one row per account. I use one row per bank.
Try not to confuse this with your investment accounts. This is cold hard cash.
Step 2. Fill out the Property section
Any property you have, whether it’s a home, car, boat, plane, jewelry, etc. Pretty much anything you can sell for cash can go in this section.
How do I value my property?
- Cars – Kelley Blue Book
- House – Zillow – This isn’t the end-all answer to home value…many people have issues with Zillow’s valuation of their home (in fact, Zillow dropped the value of my house by over 5% one month), but it’s the best thing out there that doesn’t require a ton of work. So I use it.
- Personal Property – I just consider how much I could sell it for conservatively. This is a SWAG (sophisticated wild ass guess) as we say, at least in the IT industry.
Step 3. Fill out the Investments section
Enter your retirement accounts, any college savings accounts for your children, or any other investments such as cryptocurrency or precious metals. For most people, this section will be stock and mutual fund investments.
Step 4. Fill out the Liabilities section
As we discussed above, record any loans, lines of credit, or bills. If you owe someone money, put that here. Examples include medical bills, student loans, mortgages, car loans, boat loans, credit cards, HELOCs, etc.
Timing – When to update your sheet
You can do this whenever you like, but as you get into a routine, you’ll probably do it the same time every month. For example, I calculate my net worth on the first day of each month.
What’s Your Net Worth?
Your net worth will be listed at the bottom of the table. Pretty cool!
Percent and dollar change are tracked right below the total net worth. It’ll turn red if the change is negative, and it’ll turn green if the change is positive. As Jack Black says, CHIMENEYEEEE-HAAA!!!!:
Scroll down a bit to see the chart underneath the table. If you want to modify the chart at all, feel free. I’d recommend that you leave it alone if you don’t know what you’re doing! 🙂
Here’s my net worth over the last nine months. It’s extremely encouraging to see your net worth grow, even if it is only one piece of the puzzle.
I track mine monthly here if you’d like to check it out.
So that’s it! Your net worth in 30 minutes.
Did you learn anything? Did I leave something out? I realize there could be some perspective I’m missing. I’d love for you to share that with me. If it’s relevant, I’ll update the post to reflect your feedback!