What do you mean you don’t know your Net Worth?

Whenever I travel to a new place, my initial reaction is to quickly survey the land and look for the nearest, highest point that I can somewhat easily scramble up.  There is something orienting about understanding the lay of the land.  It helps me acknowledge where I am, where I want to go, and what I want to see.  Tracking your net worth serves the same purpose – you need to understand financially where you are and where you want to go.

Lost Soul Who Doesn't Know his Net Worth
Lost Soul Who Doesn’t Know his Net Worth
“What gets measured gets managed.”

I’m a big believer of this statement and it can be very beneficial or an absolute disaster if the wrong thing gets measured.

Two examples from my work life come immediately to mind.

1.  When the economy soured several years back, upper management at my company decided to grade every department on their cost-cutting strategies.  That is what was measured for years on end and we did a great job of it.  Now our company is struggling keeping up with our competitors because we were not reinvesting in the business and innovating in new products since that wasn’t the focus.

2.  One of the few benefits that came out of our belt-tightening ways was when our I.T. department installed some software that simply tracked the number of pages sent to any printer in the office.  Along with that, a little icon appeared in the taskbar in the corner of everyone’s computer that when clicked, it would summarize the number of pages you printed, the total dollar value of those pages (~$0.07 per page), and a little snippet of your paper usage’s impact to the environment (translated into equivalent CO2 or % of a tree, etc).

Here’s the thing.  Just through the act of bringing attention to each employee’s printing habits, the company reduced it paper demand by 11% virtually overnight.  Tracking your net worth can have a similar effect.  You will get a bump-up by sheer awareness alone if you track net worth on a monthly basis.

The good news is I don’t know if there is any downside when it comes tracking net worth and there are plenty of online tools that make it very easy to do (I use Yodlee’s Moneycenter).  Regardless if the end-resulting color is red or black, it is one of the few things that you need to track and track often if you want to see any success.  Trying to tackle debt or turbo boost your savings can really be motivating when you see the line on the chart progress upward and to the right.

As a reminder, your Net Worth can be derived by adding up all of your assets and subtracting your liabilities (debts).  You’ll see folks in PF forums get their undies in a bunch squabbling about what to include and what not to include in this calculation.  I think you should include whatever the heck you want.  It isn’t a contest and you aren’t (or shouldn’t) be comparing it with anyone else. What does it matter if you want to include the value of your vintage collection of salt and pepper shakers?  As long as you are realistic about its value and you consistently measure it the same way, include it.

I currently include the value of our house because it put us over seven figures and that makes me feel good.  I’ve chosen not to include the value of our cars or any other material objects as everything else inside our house is depreciating in value.  As long as you are measuring your financial net worth in a consistent manner and on a consistent basis, I suspect that will serve as enough motivation (and reward) because what gets measured gets managed.

4 thoughts on “What do you mean you don’t know your Net Worth?”

  1. I completely agree that net worth should be managed on a consistent basis on periodic intervals. I simply use a spreadsheet and calculate it once a month. I usually only include cash, retirement, investments and the value of my home. I exclude things like cars, contents of my home and all other of my other tangible possessions. I don’t have much as far as collectables at this point. I do not have a goal, although I would like to retire at an earlier than average age (maybe between 55-60). That gives me 20-25 years to get there.

    1. I’m also a fan of only including hard, appreciating assets like cash and retirement/brokerage investments. If I owned a rental property, I’d probably also include any equity in it. Including depreciating things like (most) cars and household items is tough because they usually decrease your net worth from month-to-month. Unfortunately a lot of personal finance is psychological and I’m all for including whatever it is that will help someone save more and achieve net worth goals – especially for those just starting out.

      Just knowing your net worth enables you to set some goals and actually have some inkling to where you’re going. I think there is benefit in knowing “I may be financially independent in X-Y range of years” whether you want to formally retire or not. Knowing is half the battle and it sounds like you’ve got your ducks in a row.

      Thanks for reading, FMM.

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