How to Use a Net Worth Tracker
It’s not always easy to see the big picture with your finances when you’re busy working every day and making money. However, it’s a good idea to monitor your overall financial growth so that you can see how your wealth is accumulating over time — a practice called tracking net worth.
What is Net Worth?
Net worth is the difference between what you own and what you owe. In other words, it’s your total assets minus your total debt.
What is an Asset?
An asset is a commodity of significant value, like a house, car, checking account, and savings account. An asset may also refer to investment accounts with stocks, mutual funds, index funds, exchange-traded funds (ETFs), and commodities.
What is Debt?
Debt is liabilities that you owe, including student loans, mortgages, personal loans, and credit card debt. If you owe money on an account, that is debt and you need to factor it into your net worth.
How to calculate net worth
To calculate your net worth, first combine the monetary value of all your assets — including real estate, checking and savings accounts, retirement accounts like IRAs, Roth IRAs, and 401ks, cars, and other vehicles. If you have high-priced personal property, antiques, or rare works of art, add those totals to the mix, too.
Next, add all your liabilities — including mortgages, consumer debt, and loans. Subtract your liabilities from your assets to arrive at your current net worth.
Keep in mind that these numbers don’t have to be precise. The goal is to give you a better understanding of your finances as a starting point — that’s it. For example, you can use Zillow to get a ballpark estimate of your home’s market value. But your house is only worth as much as someone is willing to pay for it.
Why You Need to Track Net Worth
At this point, you’re probably wondering why you need to track net worth. After all, it won’t actually get you anything outright like a better rate on a mortgage or loan. So why bother to analyze it?
As it turns out, there are a few reasons why you’d be wise to keep a running tab on your net worth.
Track Financial Goals
Chances are you have a few financial goals in life — like reaching financial independence with a hefty sum in your brokerage account, buying a rental property or dream house, funding a charity, or putting yourself in a position to bankroll world travel. All of these are worthwhile pursuits.
Calculating your net worth can help you benchmark progress and let you visualize where you stand in life. In a way, net worth is a measurement of time because it lets you see how much you have accumulated so far during your prime earning years and whether you’re on track to meet your big life goals.
A key reason many people fail to meet their financial goals in life isn’t because of a lack of money. Rather, it’s because of financial mismanagement — like spending freely instead of paying down debt.
Tracking your net flow is a good way to see if your spending aligns with your cash flow. It can also help you see if you’re allocating money properly and if you need to change your budgeting strategy to improve your financial health.
Live a Richer Life
If you’re like most people, your goal is probably to either get rich or live a life that is happier and more fulfilling. Tracking net worth and keeping a watch on your personal finances can help you see if you’re on the right path.
A Tale of Two Financial Journeys
It’s important to remember that net worth is a very personal metric. Everyone is different, with their own unique set of financial challenges and aspirations.
For example, consider Jamie, who is 34 and has a house that’s worth $250,000, with $25,000 in checking and savings and another $100,000 stashed away for retirement. Jamie also drives a $50,000 car. At the same time, Jaime has a $220,000 mortgage, $300,000 worth of student loans, and $10,000 worth of consumer debt. As such, Jamie’s net worth is actually deep in the red at -$105,000.
Now consider Reese, who is also 34. Reese has no house yet but has $20,000 in checking and savings and another $50,000 set aside in retirement accounts. Reese has no car, credit card debt, and only $10,000 worth of student loans. And as a result, Reese’s net worth is a healthy $60,000 and growing every year.
Here’s the thing: Based on these numbers alone, it’s difficult to compare them or say who is happier or more successful in life. Only these two individuals can determine whether they are on track with their finances.
Jamie is much further in debt but is clearly willing to take more financial risks, which could work out favorably in the long run. At the same time, Reese doesn’t have to worry about paying down debt and can freely allocate funding into high-yield savings accounts and investment accounts so that it can grow. In 10 years’ time, Reese may be in a position where Jamie is — just without any debt.
Best Net Worth Tracker Tools
Here’s some good news: You don’t have to manage your net worth on your own because there are plenty of net worth trackers available online.
Let’s take a look at a few of them.
You Need a Budget (YNAB)
YNAB is a free tool that financial consumers can use to track account balances, assets, and debts.
One of the nice parts about YNAB is that the net worth tracking feature is customizable. You can determine which months and accounts you want to include in the report. For example, you can omit items like mortgages and investment accounts to understand how you measure up without them.
YNAB is also one of the best budgeting tools on the market. You can use the same program to narrow down your finances and develop a monthly budget to put yourself on a better track for financial success.
Personal Capital is one of the leading mobile financial services, serving as a central dashboard where you can view all of your various accounts and balances.
In addition, Personal Capital offers a net worth calculator that you can use to get a complete understanding of your investing, retirement, and bank accounts.
Mint is a similar money management app that brings together finances into one user-friendly dashboard.
Mint automatically calculates net worth by calculating cash and investments minus loans and credit card balances. You can see your net worth whenever you open the mobile app, which is convenient. And if you don’t want to see your net worth for whatever reason, you can choose to hide the graph in settings. Mint also makes it possible to adjust the time period that you want to view, for historical net worth tracking.
Learn More: Check out our in-depth Mint review.
Excel and Google Sheets
If you have Excel on your computer or you use Google Sheets, you can use these programs to download spreadsheet templates and track your own net worth. You don’t need a dedicated app or software to do it.
And if you’re not a spreadsheet whiz, no worries. There are plenty of great templates online.
Learn More: Check out Millennial Money’s net worth tracker.
Tips for Improving Your Net Worth
Take Risks When You Can
Making money involves taking a certain amount of risk. If you want to get ahead in life and become a high net worth individual, you’ll have to make some leaps at certain times — like buying a house or car or jumping into the stock market.
Focus on building a strong financial foundation for yourself by keeping debt to a minimum, building your savings accounts, and dipping into the stock market. Understand your personal financial risk tolerance, and be strategic about the investments you make. Taking calculated investment risks is one of the best ways to increase your net worth.
Pay Off Your Debt
Not all debt is bad. For example, using a credit card and paying your balance off in full every month can help you build credit while letting you benefit from cashback options and rewards. You can also build credit by paying off your student loans.
You do however need to avoid letting bad debt pile up. If you can avoid accumulating bad credit, you gain more money every month to put into investments that grow over time. Focus on paying down your debt so that it doesn’t become an issue.
Look for Ways to Minimize Taxes
Like Ben Franklin said, taxes are unavoidable. However, there are strategies you can take to minimize what you have to pay to Uncle Sam every year.
By reducing your tax obligation, you can preserve more of your wealth. This is very important as you get older and start bringing in more money.
One easy way to minimize what you pay in taxes is to start a retirement fund like an individual retirement account (IRA), which can provide tax-sheltered growth for decades — allowing you to grow your money before paying taxes at retirement age, when you’re probably going to be in a lower tax bracket.
Think Before Buying
Just because you need a car doesn’t mean it has to be fancy. Why buy a Mercedes when you can get around just fine in a Toyota or Subaru? It could make more sense to take a lower-cost vehicle.
One thing to remember is that automobiles depreciate in value almost immediately after leaving the lot. In fact, houses depreciate too — unless they are taken care of by the homeowner.
Be wise about what you buy and make sure that your investment is going to produce more money for you down the line. If you’re bound to lose money, consider putting your finances elsewhere.
Work with a Financial Planner
You might be able to improve your net worth by working with a financial planner. A financial planner can assess your overall financial situation top to bottom and give you an independent assessment of what you need to adjust to maximize your wealth.
There is no shame in working with a financial planner. Most wealthy people have consulted with an advisor at some point or another. In fact, most wealthy individuals have a network of trusted financial representatives to help them navigate complex tax laws and preserve their wealth.
Below are answers to some of the most common questions I receive about net worth.
Should I use an app or template to calculate my net worth?
It largely depends on your individual preference. Some people prefer to automate their net worth calculation while others like the process of sitting down and tallying up their assets. Calculating net worth can be a great financial exercise because it can help you think through your financial situation and identify areas of improvement.
What is a net worth statement?
A net worth statement is a report that details your overall net worth, including your total assets and debt. You can use a net worth statement to weigh what you own against what you owe.
A net worth statement is only valuable to you as an individual. You cannot use a net worth statement to apply for a mortgage or loan. However, the information included in a net worth statement can help you understand your overall financial situation, making it easier to make financial decisions.
How can I improve asset allocation?
Focus on diversifying your assets and putting your money into different investment vehicles like index funds and ETFs. Through diversification, you can reduce risk and protect your wealth from market volatility. This can prevent your net worth from taking severe dips during down markets.
The Bottom Line
If your goal is achieving financial independence, you should keep a running estimate of your net worth. Whether you do it manually or automatically, tracking your net worth can help you better understand your overall finances and meet your financial goals.
If you are struggling to track and manage your finances, consider working with a trusted financial planner. You can also try using an app like YNAB or Personal Capital to track your finances and receive tips.
The more you pay attention to your financial situation, the more likely you’ll be to achieve your financial goals. It’s really that simple.