I Track My Net Worth Every Month & So Should YOU!!!

It seems like many of the people who I talk to about finances or their future have this goal of “being a Millionaire.” I hear it all the time, “Someday, I want to be a Millionaire” or “I plan to retire as a Millionaire.” If you have goals like these, or BIGGER, do you know where you are today? Do you know how close you are to achieving those goals? What are you doing on a regular basis to get closer to those goals?

Earlier this year, I read Gary Keller’s book “The Millionaire Real Estate Investor.” There is a section in the book titled “The Net Worth Model.” The section talks about what Net Worth actually means and how to know & understand what your net worth is. He suggests that you should track your net worth every month so that you know where your finances are & where they are going. This section of the book really intrigued me & I decided that it was time for me to track my net worth. So I did it in February, March, April, May & June. I now have a system in place where I set an appointment on my calendar to work on my net worth calculations on the 25th of every month. I don’t miss that appointment and it has proven to be a huge advantage for me. Now I know, every month, what my financial situation looks like. I compare it to the previous month & (most important) I can decide what I need to do to improve on it. And now, I’m going to tell you how your can do the same thing in the hopes that it will help you improve your financial situation too. (*Sample Balance Sheet Below is adapted from sample listed in The Millionaire Real Estate Investor).

What is Net Worth?

The short answer to the question “What is net worth?” is that your net worth is equal to all of your assets minus all of your liabilities. On paper, it’s what you are worth financially. Your net worth can be a positive or a negative number. If your debts outweigh your assets, unfortunately, your net worth is negative.

Knowing Your Assets?

First thing is first, let’s try to figure out what all of your assets are, write them down on a piece of paper (or an excel spreadsheet).

• Retirement Accounts – Do you have any 401k accounts, IRA’s, SEP’s, 403b’s, Pension etc? If so, what are they worth? For these accounts you probably receive a quarterly statement, but you want an up-to-date statement effective today. Most retirement plans have some sort of online portal where you can see your account balance effective at the close of the previous business day. So, do what it takes & get an online account to find out what your balance is. Do this for all of your accounts. Don’t forget about those accounts from jobs where you haven’t been for years. So many people have retirement money that they don’t even remember they have. These are YOUR assets, make sure you know what they are.
• Equity Investments – Do you own equity in a public or private business? How about Stocks, Bonds or Annuities? This is the place to give yourself credit for the value in those equities
• Cash/Savings – This is an easy one, how much Cash do you have? How much money is in your checking & savings accounts?
• Insurance – Do you have a life insurance policy that has a Cash Value? If so, write down the cash value.
• Collectibles – What is the value of that baseball card collection that you have sitting in the attic? Or do you collect something else of value, write it down here? If you don’t know what the value is, this is a good time to have someone give you an estimate.
• Real Estate Personal – This is where you want to make a note of the value of your home. What is your house worth & how do you find out? One way to find out is to reach out to a Realtor & ask them to give you an opinion of what your house would sell for. If you really want something official, you can get a BPO (Broker’s Price Opinion) which may cost a little bit of money, but knowing the value could go a long way. Zillow has the “Zestimate”, which is a rough and dirty idea of what your home “may” be worth.
• Real Estate Investment – This is the place where you will list the value of any investment properties that you own. I like to list mine out individually as their own line item so that I can follow them closer. You can use the same methods above to find out their value.
• Notes Receivable – Have you loaned money as a Note? Make sure that you account for the amount that is remaining on that note.
• Personal Property – Do you own any personal property that has a value? This is a good place to list your car(s) if you own them, or even if you have them financed. The car has a value, even if the value is less than the amount owed to the finance company. It's also important to note that if you have a vehicle that is being leased that is not considered to be an asset since you will not be the owner.
• Other – Did we miss anything? I’m not sure what else there is, but if you have something that doesn’t fall into one of these buckets, make sure you are accounting for it.

Total Assets

Ok, now add them all up. This is the total value of all of your assets. What does it look like? Is it higher than you thought? I hope so.

Knowing your Liabilities

Now that we did the fun part & looked at all of your assets, it’s time to look at your liabilities. These are all of payments or debts that you currently owe.

• Car Loans – Every month when you receive your car loan statement it will show you the outstanding balance, this is what you still owe on your car. Make sure that you include any leased vehicles on here. A lease payment is one of your debts, so you want to make sure to track it.
• Credit Card Debt – List out the amount owed for each credit card that you have here. Give each card its own line so that you can see which ones are increasing & which are decreasing.
• Mortgage Debt – Every month your statement will show your Outstanding Principal Balance; this is the amount of principal that you owe on your house. Just like the asset section, create a separate line for each mortgage that you have (personal & investment)
• School Loans – Find out what the payoff for your student loan debt is. Make sure that you include all loans.
• Other Debts – Do you have any other outstanding debts? Include them here. Things like HELOC’s may be included here or other debts that didn’t fit into one of the categories mentioned.

Total Liabilities

Now it’s time to add up the Liabilities. That’s everything that you owe. Is that number higher than you thought? I hope not, but if it is, now you know what you have to do.

What is your number?

So now, just do the last bit of math. Total Assets (minus) Total Liabilities = Net Worth. Now you know, financially, what you are worth as of today.

Cash Flow

The bottom of the sheet has a section where you can track your cash flow. Did you have a goal in 2016 to make more money at your regular job? Did you have a goal to increase your unearned income (rental income, investment income, etc...)? The year is half way over, how are you doing? This is a good place to keep tract of this and help you to achieve those financial goals.

Just Do It

As I mentioned earlier, I do this every month. The first month took me a little more than an hour to get everything set up, but now it probably takes me less than 30 minutes to do it. Some great things that I’ve learned from doing this exercise:

• Every time I make mortgage payment the Outstanding Principal Balance will decrease, which makes my net worth increase. That’s fun to see every month, especially on the properties where that mortgage is paid by my tenants.
• Every time I pay down one on those nasty credit cards, my net worth goes up. It’s great to watch them go down & also a good motivation to make sure they don’t go up.
• I now keep a closer eye on my retirement accounts than I ever have in the past. I'm actually in the process of making some changes that I'll blog about in the future. I probably would not have been so motivated to make these changes before I started doing this exercise. 

I hope you try this exercise & I hope that it helps you to have a better understanding of your own financial situation. Let me know how it worked out for you. Are you closer to reaching that goal of being a Millionaire than you thought? Have you found new ways to decrease your debts & increase your net worth? Please leave a comment.

Good Luck!!!