Do you track your net worth?

[Douglas Skipworth]

I'm teaching a class on buy and hold real estate investing in Memphis and I'm looking for some real life examples to share with the students.

Here's the brief background on my question below.

I believe 2 things.

1. People who regularly measure their net worth have a larger net worth than those who don't track it.

2. People who track their net worth regularly grow their net worth faster than those who don't measure it regularly.

If you're like me and you belief these 2 statements (I'm assuming everyone does, right?!), will you share some basic facts with me about your experience so I can have some real life examples to encourage with my class with (below is my personal experience)?

Personally, I have been tracking my net worth on a monthly basis since 2008 and it has grown 50X over that time period.

What is your experience with tracking your net worth?

[Douglas Skipworth]

Quote from @Alecia Loveless:

@Douglas Skipworth I have done a PFS several times for lenders when borrowing money. Last year I got curious and set about calculating my net worth. It was something I hadn’t done before. It surprised me.

Just after the new year I took out my trusty notebook and looked up last years net worth, turned the page and calculated my new net worth. Once again I was pleasantly surprised.

I am far ahead of most people I know but no where near where I want to be. At a minimum I want to 25X where I am right now. If that makes calculating my net worth a motivating factor then I guess it is.

I love this, @Alecia Loveless!   Congratulations!

Is buy and hold the source of your financial success and/or do you see real estate investing playing a big role in getting your net worth 25X bigger?

[Henry Clark]

We just started tracking our net worth about 5 years ago when we started using a Wealth management company.  Before that we knew we were at a good spot, but not where that spot was.

Good from a comfort level, but doesn’t mean much once you hit your number.   

For us success is not our Net Worth growing but our projects succeeding.  Some of our assets we are okay with poor returns.

As we started looking at net worth the key benefit for us was looking at our Risk/reward by asset types.

For comfort we wanted x years of cash equivalents available.  CD, MM, bonds, etc.  We don’t care that we aren’t making money like our other asset categories.  This was for my wife who is uncomfortable learning and understanding all the moving parts.  

Myself I hate cash.  That’s what our bankers are for and our net worth as collateral.

Stocks we like from a diversification and passive standpoint.  

Cashflow for personal needs we pull from the cash equivalents above, plus other monthly sources.

Real estate is broken between development and mature.  Although our developments look great on paper they have the risk of if I die while incomplete.  We could lose 50%!or more of the value.  This we took out term life insurance to cover projects and time periods.

From a bankers standpoint our values are different, thus our net worth.  Example.  As long as they can control access to a financial investment they will give us 90% value.   Farm ground they will only collateralize at 65%.  Our storage business they will collateralize at 80% of value.  

As folks have noted above. From an REI standpoint. Say $2mm each. 20 SFH, 1 MFH, 1 Selfstorage. I can justify why each one is both good and bad. The individual has to understand their risk reward and their resources at different stages of their financial lives.

If I was just starting out in the military my first investment would be a trailer.  I would make $30,000 tax free in 2 years with say $3,000 down.  At my stage I wouldn’t do that investment.  

[Mike Dymski]

IMO, it's helpful to track and have annual goals for net worth and investment income.  I do that personally...and my employer does it as well.  Keeps me focused on buying/adding/driving up value.

[Carlos M.]

@Douglas Skipworth

I track it monthly. That which is measured grows. It’s required by my lenders for every new acquisition, and every lender I’m in bed with requires an updated PFS annually.

Dm me if you want more specifics.

[Jeremy H.]

Quote from @Douglas Skipworth:

Great comments above!

Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.

Under 35: $13,900

35-44: $91,300

45-54: $168,600

55-64: $212,500

65-74: $266,400

75 and over: $254,800

At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?

Personally, I am ahead and real estate investing played a significant role in getting me there.

Eye opening statistics

I track my net worth yearly - it's more of a game/challenge to me and I like to see how things are balanced. I'm basically 50/50 right now between real estate (accurate equity assessment) and stocks (index funds/401k, roth IRA etc). I like to maintain a degree of diversification and liquidity, and although I like RE, stocks, especially retirement stocks, have some really good benefits as far as tax deferred growth and tax free gains.

As far as your 2 beliefs - I think it's more that those who track their net worth likely have better financial habits and responsibility than those who don't. I don't think actually tracking your net worth does anything significant, but I think those that do it, do it for a reason and may even have goals associated with their net worth as well as other financial goals. These goals and habits are what drives someone to track their net worth, in my opinion. 

In my personal experience it's motivating and informing. You can see what works (equity capture at the buy for example can increase your net worth instantly), what doesn't work, what's within your control, and what may be out of your control (negative year in the stock market). 

You can also get a good sense of how your portfolio is balanced. I can see my retirement (401k, Roth IRA), my liquidity (index funds/personal emergency fund/RE emergency fund), health related expenses (HSA), kids college (529 state plan), savings (HYSA), Real Estate equity (through appreciation, equity capture at the buy, loan paydown) etc. So I separate mine into categories, then combine the similar stuff (RE equity vs money), then combine the two to get a total.

I do think it's very important to track your progress - it's the only way to improve in my opinion. 

Benjamin Franklin said something like "Watch the pennies and the dollars will take care of themselves". I think this is highly important - if you budget monthly, watch your cashflow on a property by property basis (as well as overall portfolio), choose good properties you can force equity into and capture equity at the buy, choose good stocks that consistently gain over the long term, then your net worth will take care of itself. 

[JD Martin]

Quote from @Jeremy H.:

Quote from @Douglas Skipworth:

Great comments above!

Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.

Under 35: $13,900

35-44: $91,300

45-54: $168,600

55-64: $212,500

65-74: $266,400

75 and over: $254,800

At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?

Personally, I am ahead and real estate investing played a significant role in getting me there.

Eye opening statistics

I track my net worth yearly - it's more of a game/challenge to me and I like to see how things are balanced. I'm basically 50/50 right now between real estate (accurate equity assessment) and stocks (index funds/401k, roth IRA etc). I like to maintain a degree of diversification and liquidity, and although I like RE, stocks, especially retirement stocks, have some really good benefits as far as tax deferred growth and tax free gains.

As far as your 2 beliefs - I think it's more that those who track their net worth likely have better financial habits and responsibility than those who don't. I don't think actually tracking your net worth does anything significant, but I think those that do it, do it for a reason and may even have goals associated with their net worth as well as other financial goals. These goals and habits are what drives someone to track their net worth, in my opinion. 

In my personal experience it's motivating and informing. You can see what works (equity capture at the buy for example can increase your net worth instantly), what doesn't work, what's within your control, and what may be out of your control (negative year in the stock market). 

You can also get a good sense of how your portfolio is balanced. I can see my retirement (401k, Roth IRA), my liquidity (index funds/personal emergency fund/RE emergency fund), health related expenses (HSA), kids college (529 state plan), savings (HYSA), Real Estate equity (through appreciation, equity capture at the buy, loan paydown) etc. So I separate mine into categories, then combine the similar stuff (RE equity vs money), then combine the two to get a total.

I do think it's very important to track your progress - it's the only way to improve in my opinion. 

Benjamin Franklin said something like "Watch the pennies and the dollars will take care of themselves". I think this is highly important - if you budget monthly, watch your cashflow on a property by property basis (as well as overall portfolio), choose good properties you can force equity into and capture equity at the buy, choose good stocks that consistently gain over the long term, then your net worth will take care of itself. 

 Exactly. Correlation is not causation. I am certain there's a strong correlation between people who track their net worth and increased net worth over time, but I don't think it is because they tracked their net worth. Rather, people who are prone or conditioned to think that way are going to be constantly doing things that increase their net worth, or at least considering whether or not their actions will have a detrimental effect on it. I definitely track mine but it doesn't particularly motivate me to work harder to make the number bigger. Aside from my banks, I just want to know what it is because I want mathematical confirmation that the crux of my actions over the course of a year (I actually track it about every few months if I'm not submitting it to someone) are contributing to rather than subtracting from my pot of gold. 

As for the median American in my age group, yes I'm way beyond that and I attribute that success to the following:

- Willing to delay gratification on a regular basis

- Willing to do jobs no one else wants to do

- Willing to work long hours for results (a strong work ethic)

- Willing to take calculated but high upside/low downside risks

- Willing to allow the "fruits of my labor" to be returned to the business instead of paying for a lavish lifestyle

- A strong commitment to these principles by my spouse

- A strong run of being healthy enough to work to produce excess profits

- The fortuitous grace of being born and growing up in the United States, where opportunities for financial success are everywhere and accessible to anyone

- A splash of luck at being in the "right place at the right time"

[V.G Jason]

Quote from @Douglas Skipworth:

Great comments above!

Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.

Under 35: $13,900

35-44: $91,300

45-54: $168,600

55-64: $212,500

65-74: $266,400

75 and over: $254,800

At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?

Personally, I am ahead and real estate investing played a significant role in getting me there.

 How are we defining net worth? I find it hard to believe so many under 35 are in the positive. They are the biggest student loan & credit card debt people with the least amount of assets and many with none.

[V.G Jason]

Quote from @JD Martin:

my age group, yes I'm way beyond that and I attribute that success to the following:

- Willing to delay gratification on a regular basis

- Willing to do jobs no one else wants to do

- Willing to work long hours for results (a strong work ethic)

- Willing to take calculated but high upside/low downside risks

- Willing to allow the "fruits of my labor" to be returned to the business instead of paying for a lavish lifestyle

- A strong commitment to these principles by my spouse

- A strong run of being healthy enough to work to produce excess profits

- The fortuitous grace of being born and growing up in the United States, where opportunities for financial success are everywhere and accessible to anyone

- A splash of luck at being in the "right place at the right time"

 This, in bold, is the single most significant thing in regards to building net worth, and overall discipline. Just because you don't practice it doesn't mean you automatically subscribe to instant gratification, but it's likely if you subscribe to instant gratification the losses are compounded by not subscribing to delayed gratification. 

Gratification in investing, particularly, is a really difficult thing for most individuals(90%+) to weather. If you can really weather the turbulence, it's how you come out on top.

My net worth was primarily made off two large (cross-commodity) bets at two different times, but close to one another. I look back at that time and wonder how I had balls of steel, but realized I didn't have all this information we do now with the media pounding away. That not playing a role definitely helped. Nowadays, if people see their rent dipped $50/mo year over year it's time to panic. 

Managing gratification, expectations, and keeping yourself covered(insurance, cash, protection, no debt) will allow you to take risks that will make your NW multiply. 

[Chris Clothier]

Quote from @Jay Hinrichs:

Quote from @Scott Mac:

OK I'm gonna come at this a little sideways.

$11 million worth of eclectic assets in Albuquerque to some people is not the same as $11 million worth of part of a partnership/LLC that owns prime real estate in Manhattan.

Having net worth is helpful when seeking borrowed money for business Ventures, as some of the men above have already pointed out.

But net worth is not the be all and end all goal. Because you cannot spend net worth. Cash flow is required to live well.

Yes you can borrow against your net worth, but it's Cash flow has to support the loan.

If you are teaching this to children the nuances of the net worth equation as far as a CPA would do it correctly- are probably going to be lost on them. But exposure to it is always a good thing.

As far as it being the be all end all driver of business decisions, for some people it may be and for some people it may not be.

It's always great to have more equity in a deal than less when you get done with your vision of it.

Whatever is measured is more likely to be changed in favor of what you want it to be. But then along comes things like the divorce court system in the USA which can liquidate you like a hot knife through butter.

So with all of that coming at it sideways said above, having a positive net worth that is large is much more comfortable feeling than having a net worth that is small or nonexistent.

But let's not forget the importance of cash flow, and the impact of federal state and local taxes on our assets and cash flow also. 

I have reviewed many many statements of net worth. One thing I will say is it is a piece of the puzzle. Along with total amount borrowed, cash flow, length of time in business, business practices, Interpersonal skills and what makes up your assets, Etc...

Good Luck!

Also there is a huge difference in Net worth in real estate assets and other assets. U have net worth based on what you write down as retail values.. However at any given time liquidating these RE assets if your moving to cash is going to cost you 8 to 20%..  8% sales costs if nothing needs to be done and values are exactly what you state.. 20% or more discount if you have to rehab or market price softens at the time you have to sell..  Huge difference in 10 million of equity and 10 million in cash. or cash equivalents.  I will have to ask my Banker if they discount net worth when the majority of it is real Estate assets.

This thought process was very pronounced when my Timber partners wife would only look at cash as assets everything else she said was just numbers on paper :)

 Same goes for untraded equity like ownership of a company.  A well-established company, I'll use mine for example, that has two decades in business may constitute a large part of someone's networth.  It is untradable but not neccesarily unaccessible.  It can be used as I stated above for borrowing purposes and can be helpful in getting better terms.  However, it is not liquid.  

So, a lot of good points brought up in this discussion for entrepreneurs, business owners and investors.  Perhaps part of a net worth calculation should also be how much is your experience worth?  Knowing and understanding where you are, where you're going and how you get there enables you to use your assets and NW to your best advantage and avoid the detrament.

[Eric Bilderback]

How else would I know if I am winning or not?

[Reed Rickenbach]

@Douglas Skipworth - is the class at UofM? Would love to hear more about it. One of my long-term goals to come back & teach a real estate class there. 

I track my net worth & total RE market value monthly. I agree with your point 99.9%. The 0.1% is left because, if someone is addicted to seeing their net worth increase MoM, they may be hesitant to take certain risks. They may be hesitant to invest in education or start a business with upfront marketing costs, etc. 

However, tracking your net worth monthly largely outweighs any downside. Shoot, even just witnessing what an expensive vehicle can do to your net worth every month is worth the exercise. 

[Heather K.]

Did my first balance sheet in spring 2019.  It was a huge slap in the face and motivation to start the needle moving a bit faster.  We were waaaaayyyyyy behind where we should have been given our age and income.

Since then I update our balance sheet quarterly.  I just copy the spreadsheet tab, rename it and update the numbers.  It's our measuring stick. It forces us to be more mindful of our spending.  It gives us direction.  When we are looking at making another RE purchase, or make a job change, or thinking to buy some frivolous doodad:), I use it to to project what the outcome will look like in 3-6 months.  

Personally, I think everyone should maintain a balance sheet.  In 2019, our net worth was growing yearly by about 25% of our annual income.  Today it's growing by about 110%. To think I can save more in a year than I make in a year, and still live a life is mind blowing.  But that's the beauty of compound interest I guess.

[Heather K.]

Quote from @V.G Jason:

Quote from @Douglas Skipworth:

Great comments above!

Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.

Under 35: $13,900

35-44: $91,300

45-54: $168,600

55-64: $212,500

65-74: $266,400

75 and over: $254,800

At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?

Personally, I am ahead and real estate investing played a significant role in getting me there.

 How are we defining net worth? I find it hard to believe so many under 35 are in the positive. They are the biggest student loan & credit card debt people with the least amount of assets and many with none.

Well, we did some RE many years ago and lost our butt, so I can't attribute it to RE alone because on our own, we were idiots.  Honestly, it's from studying hard and actually implementing much of the advice of gurus like Dave Ramsey and Robert Kiyosaki, and people here on Bigger Pockets and other financial podcasts and books.  Thanks everyone!

[Nehemiah Burney-Porter]

I personally dont track my net worth. Its not a metric that i can actually utilize for anything unless youre trying to liquidate all your assets. Almost everything i do right now is based off monthly profit. How much cash post taxes im bringing in - expenses. Thats the number im currently focused on optimizing. 

Especially as a buy, hold and rent investor, net worth will really come into play when im in my later years or looking to cash out the portfolio.