Why I don’t track my net worth

Earlier today I described net worth, and asked if it were the most important number in personal finance. Many people believe that it is. For them, it acts as a motivator, a sort of “life scorecard”. For others — and I'm one of them — net worth is just another number.

As I do my finances, Quicken computes my net worth, but it seems largely irrelevant to me. I don't even know what the number is at the moment. (I'd have to open Quicken to check.) There are two main reasons I don't track my net worth more closely:

  1. I've never figured out how to calculate my net worth in a meaningful way.
  2. There are other numbers that are more useful to me.

I recognize that net worth is an important part of my personal finance toolbox, but to me, it's just one tool of many.

Learning the Rules

For net worth to be meaningful from one year to the next, it must be calculated the same way each time. But what's the best way to calculate it? Here are just a handful of the dilemmas I face personally when trying to generate the number:

  • Kris and I keep separate finances. When calculating net worth, do I include just my assets, or do I include hers too? How do we account for joint assets like the house?
  • Should I even include the house? If so, how do I value it? At the price we paid in 2004? At an estimated market value through something like Zillow? At its assessed value? Or should I track my net worth without real estate?
  • What about my businesses? I own ten percent of the box factory. I own 100% of Get Rich Slowly. How do I determine what these are worth? How do those numbers figure into my net worth?
  • My financial records are incomplete until about 2005. How do I account for the gaps? What good is tracking my current net worth if I don't know my past net worth? Will knowing my net worth change the way I do things?

I don't know the answer to these questions. As a result, I don't track my net worth except for the Quicken auto-computation. I do look at that number every few months, but more out of curiosity than for any real purpose.

Don't get me wrong — I'm not dissing net worth. For many people — perhaps for most people — it's a great way to “keep score”, to track progress while accumulating wealth. But I feel like it doesn't do a good job for me and for my situation.

Keeping Score

If I find net worth inadequate, then what numbers are important to me?

  • When I was in debt, the only number that mattered was the amount I owed. That kept me focused on the task at hand. (And even when I was in debt, my net worth was positive, so that wouldn't have been a good motivator.)
  • Now that I'm out of debt, the number that matters most is my savings account balance. (It's getting close to my $10,000 goal!)
  • Once I finally have enough tucked away for emergencies, I'll focus on my retirement savings. You can be sure that'll be a big topic around here in 2009. (We can all try to determine our Magic Numbers!)
  • Our mortgage balance is also important to me. Kris and I have our own mortgage acceleration plan in place, and we like watching the balance drop. (It'll fall below $210,000 this month.)

Compared to these four numbers — numbers that measure my immediate needs and goals — net worth seems secondary. I recognize that it's an important reflection of my overall financial health, but I believe that if I focus on these smaller things, my net worth will take care of itself.

My Advice

As always, do what works for you. If net worth is a valuable tool for you, if it keeps you motivated, if it provides information you can use, then use it.

However, if net worth seems like just another number, don't sweat it. It's still a good idea to check your net worth every year or so, but if other numbers are more important to you, then let those motivate you to success.

More about...Psychology

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pll
pll
12 years ago

Hi J.D., I think that net worth is a useful number, but not something I spend a lot time worrying about. When you start getting into “assets” like a house, cars, boats etc, it becomes very hard to put a value to them because there is no way to objectively measure their value. These numbers are just opinions. You house is always worth more to you than what others think it might be worth. You could, as with cars, attempt to use the “blue-book” value, i.e. the “what could I sell this for” number. But with houses this gets complicated,… Read more »

Brian
Brian
12 years ago

The funny thing about your approach is that you are basically following your net worth. If you calculate net worth using something software you can look at all these numbers in one big picture. I look at my net worth overall, but then look at the pieces that make up the calculation. In doing so, you see your overall position, and you see you credit debt, your mortgage amount, your savings balance, your investments, your retirement balance, etc. You can watch them all at the same time but then also see the whole picture to give your finances more context.… Read more »

Cabbage
Cabbage
12 years ago

Hi J.D.,

Your approach resonates with me, I’ve always found that tracking net worth focuses on the wrong thing. I prefer tracking net change. Net change gives me a clearer sense of spending/saving trends and can be an encouraging number even while climbing out of negative net worth.

-C

Jon
Jon
12 years ago

JD,

You’ve mentioned it before and possibly explained it, but if you did, I missed it. You list the fact that you and Kris keep separate finances as one of your reasons for not worry about net worth. Why do you keep separate finances?

I cannot think of any legitimate reason for spouses to have separate money. When you get married you share your thoughts, your bodies, yours kids, your house (as you mentioned), the government considers your joint assets one estate, so why create an artificial delineation of money between yourselves? That just seems unhealthy on many levels.

J.D.
J.D.
12 years ago

Hi, Jon. The link to “separate finances” in the post leads here:

https://www.getrichslowly.org/which-should-you-choose-joint-or-separate-finances/

in which I explain why we have separate finances. Basically, it’s just how we’ve always done things, it’s what seems natural to us, and it works. I understand that many people cannot fathom separate finances. But many others cannot fathom joint finances.

As usual, the best choice is the one that works for you (and your partner).

deepali
deepali
12 years ago

And I’m the third side on the separate finances issue – I can’t fathom anyone who can only fathom one or the other! And I have yet to meet a married couple who completely shares their thoughts… and lived to see the light of day. 🙂 But I agree with poster above who says you basically are tracking your networth. In order to get at that number, you have to get at all the pieces – net worth is really only a big picture. Useful for determining direction, but not much beyond that. I do the same thing you do… Read more »

Jeff
Jeff
12 years ago

I don’t think you need to do more than what you are doing in Quicken if it tracks all your accounts. I have a spreadsheet similar in concept to the one found here:
http://www.madcapitalist.com/tools.htm

I put together all my data for as far back as I reasonably could. It’s pretty motivating to see the progress I’ve made from being in the hole with student loans and credit card debt to my current situation. And if you have an aggregate savings target it is nice to see the progress being made.

Susan B.
Susan B.
12 years ago

I actually started calculating my net worth last night. And it is a little disconcerting with all the negative trends lately with real estate and the stock market. I agree with you in that at this point in time, I prefer to monitor the individual aspects – debt reduction & emergency savings. It gives me a feeling of accomplishment. Hopefully in a about 12 months, I too, will be concentrating more on my retirement funding.
And,in the end, if all works to plan, your net worth will equal your savings/investments as stated previously.

April
April
12 years ago

I thought my husband and I would keep separate finances and one joint account, but we decided to merge everything. As the person who keeps up with the finances, it makes my life much easier. But this is a post on net worth… I’m moving everything from Excel into Quicken, so I imagine I’ll get some sort of net worth value, but there are a lot of gray areas. There’s our land, which has appreciated quite a bit since we bought it, there’s my 403b, which I’m not 100 percent vested in yet, so do I count the full amount… Read more »

Dave Jones, CPA
Dave Jones, CPA
12 years ago

Net worth in accounting terminology is assets minus liabilities. What you own less what you owe in a nutshell. Accountants also like to use cost when determining asset value. I believe this contributes to your case; how meaningful is it? Not very! If you were using the number purely to look good in social circles everyone would have to compute it the same to compare apples to apples. If your are using it as a financial tool the annual change (as cabbage said) in your net worth would be the best tool in my opinion. The only caveat is to… Read more »

trb
trb
12 years ago

Still in stage 1 – using “total debt” as the big motivator. That monstrous six-digit student loan (for the two of us) is gonna be there egging me on for many years.

The savings accounts and IRAs I keep track of too, but they don’t move me like the debt does.

Eric R.
Eric R.
12 years ago

Hi JD, I just wanted to share my attitude about the meaning of Net Worth: it’s just one important number in a set of important numbers that collectively comprise my personal financial scoreboard. Here are some of the other numbers in my Financial Scoreboard – note that my personal scoreboard is defined by the fact that I am self-employed, and my income levels vary significantly from month to month. – Yearly budget divided by 12, aka monthly budget, aka “household burn rate” – Short term cash reserve, aka “float” which I try to maintain at 3x monthly budget – Monthly… Read more »

halfnine
halfnine
12 years ago

I find net worth to be to limiting, so about once a year I track the year that we can retire (we’re in our later 30s right now). This is only measure that is really important or resonates with me. It’s also the one measure that allows us to budget our lifestyles so that we can enjoy the present yet still plan to have enough money to last us through our lifetime. So I do look at net worth (but only reflective of the assets that we would sell off before we die) and adjust it based on anticipated yearly… Read more »

JBE
JBE
12 years ago

I have Quicken track three net worths. While the numbers themselves have meaning, the thing I really track is the difference in the numbers from one year ago. (I do not give myself credit in these numbers for the value of cars or my home.)

1. Cash Flow Net Worth = (Checking, Savings, etc) less (Credit Cards, Short Term Loans, etc)

2. Mortgage Net Worth = Cash Flow Net Worth less Mortgage Balance

3. Retirement Net Worth = Mortage Net Worth plus (401k’s, IRA’s)

TosaJen
TosaJen
12 years ago

I think the importance of the Net Worth number depends on your financial goals. If you want to be financially independent (FI), you need to have assets that produce enough income to support your lifestyle, so that any work-related income is a bonus. DH and I would love to be in a position to choose work for fun and to support our interests, while we’re still healthy and able. So, it’s a secondary goal — we are still living in the present, but we tend to be “cheap” for things we don’t care about and spendy on things we do… Read more »

Early Retirement Extreme
Early Retirement Extreme
12 years ago

Net worth is not very useful for early retirement (I had a post on it about a week ago, too lazy to dig up the link), but for those who plan to liquidate all their belongings and convert it into cash or an annuity and live on that when they retire, it is useful. What is relevant to me is the balance between expenses and investment income. The latter better remain above the former. Another number to keep in mind is the savings rate measured in the amount of months one must work to take a month off – basically… Read more »

kick_push
kick_push
12 years ago

as far as your house goes.. maybe you should count half the house value as an asset.. and half the mortgage as your liability.. and i use zillow as an estimate.. i know it’s not completely accurate.. but that’s the best thing to go on i don’t think you can put a number amount on the businesses you own.. so i wouldn’t include those as far as the gaps in your financial history.. there’s nothing you can do about.. but it’s always good to start now.. nice to know how well you are doing (net worth wise) five years from… Read more »

Steve
Steve
12 years ago

Hi J.D.

You constantly make a point about being “debt free” even though you have a large mortgage ($210,000). That’s not really “debt free”. That’s actually more total debt than I’ve ever have in my entire life. We seem to have very similar beliefs regarding paying debt off and building a savings account, but I can’t imagine owing $210,000. I’m 39 years old, married with 2 kids and we don’t have any debts – no mortgage, no car loans, no line of credit etc. That’s a nice feeling! Hopefully you can soon have that feeling too.

BTGNow.net
BTGNow.net
12 years ago

The four things you mentioned, your (former) debt level, your saving acct balance, your retirement fund and yuor mortgage, will all factor into your networth. I don’t track mine, as all I really care about is the status of my emergency fund and my retirement savings, but for someone who wants a complete financial snapshot of their lives, a calculation of networth can be very useful. It can also be useful in pointing out to people who seem to “have it all” that they may, in fact, be overextending themselves. For those of your readers interested in calculating their net… Read more »

MultifolDream$
MultifolDream$
12 years ago

I agree with Steve – debt free means you have no debt at all. So you still have some work to do.
Regarding the NetWorth tracking I like the simple approach – Excel.

RetiredAt47
RetiredAt47
12 years ago

Given the current state of both the stock market and the real estate market, I think even those of us who have tracked net worth in the past are averting our eyes now when the statements come in, LOL! It can be pretty discouraging to see your net worth take a big hit, and I could get a serious stomachache if I looked too hard. So, although I have faithfully tracked net worth in the past, I am taking a bit of break from it. Net worth, in some form, may become more important as you near retirement. It is… Read more »

Don
Don
12 years ago

I do a net worth every month for personal entertainment, and I print it out every quarter for my wife. In fact that is the whole reason I started doing a net worth; for her. I have had a list of accounts and contact numbers for a long time, but I realized that if I were hit by a bus or something, my wife would need to know how much we had and where we keep it. She’d need something at least to take to a financial person. So I do the quarterly net worth for her. In my mind… Read more »

J.D.
J.D.
12 years ago

Steve and co. — you’re right that I am not debt free because of the mortgage. Maybe I do toss the term around too loosely. When I say it, I always mentally add the qualifier “except for the mortgage”, but I stopped writing it like that because it seemed clumsy. Maybe I should switch to “no longer have consumer debt” or something…

Greg C.
Greg C.
12 years ago

Having a mortgage makes sense for most people for many reasons. I personally wouldn’t bother qualifying a mortgage as being “in debt” unless I were upside down. If one has no mortgage, good for him.

CrackingGold.com
CrackingGold.com
12 years ago

Hi. I think it is important that you have reasons for tracking something. I mean, I actually don’t follow computing for net worth to the detail but, i guess, what I find most useful for me is actually listing down what I own and what I owe. A similar exercise I do is creating a will. I like creating that because I’d want my loved ones to get everything — just in case. For example, I’d want all my insurance funds to be claimed. I mean, it could very well happen that the funds won’t be claimed because people didn’t… Read more »

leigh
leigh
12 years ago

i personally find net worth to be pointless at this stage in my life. i’m 25, still in grad school, have some student loans, and don’t anticipate that situation changing until spring. (i hope!) instead, i view the value of my training experiences as more important than money- because it’s a tremendous opportunity. had i gone the route that gave me the most money (ie, greatest increase in net worth) immediately, that would be a great decision in the short run but a poor one in the long run. sometimes we take short term hits for long term gains. i… Read more »

JackandJillsMoneyBlog
JackandJillsMoneyBlog
12 years ago

J.D, First of all, thanks for the blog, I really do enjoy it. Usually i agree with your posts, on this one I have to take the other side. In your post, you provide four potential obstacles that make it difficult for you to track net worth. Separate Finances – This is easy to overcome, just start to track your assets and liabilities together. If that’s not possible, just divide the joint assets by 2. House – Use Zillow or a similar source to come up with a rough estimate, and subtract 6% to cover the broker fees that you’d… Read more »

TS
TS
12 years ago

I keep track of my net worth but the main thing I look at is my LIQUID NET WORTH. That is basically all my LIQUID ASSETS MINUS ALL LIABILITIES. Someone who is house rich but cash poor for instance might have little or no liquid net worth. To me liquid net worth is what matters in terms of “freedom” and retiring early. I don’t even include my retirement accounts in my liquid net worth because I don’t want to touch those for at least 30 years.

Nk
Nk
12 years ago

Net worth can be a dangerous number.

when house prices were increasing, so were peoples net worth and they felt RICH, and they were encouraged (at least here in Ireland but i assume in the US as well to release some of that net worth to enjoy holidays, big cars etc). These people have now, with a large housing downturn, found their net worth quickly evaporate and go from positive net worth to negative when their debts didn’t fall like their house values

plonkee
plonkee
12 years ago

I calculate my net worth annually, but set no goals for it or anything. I look at what I owe on the house, how much I have in retirement accounts, how much I have in other investment accounts and how much I have in ready money. These can’t be treated the same. For example the money I have in my retirement account cannot be accessed (I’m in the UK) so won’t help me in any emergency no matter how dire. Similarly, it takes a long time to sell a house over here – I’d have trouble cashing it all in… Read more »

Kacper
Kacper
12 years ago

I also don’t track my net worth. For me, the most important number is the difference between what I earn and what I spend. I calculate it each month and it works pretty well for me.

George
George
12 years ago

Firstly, net worth is a fascinating number when it is viewed as a trend. I can’t think of anyone that would not like to see a positive trend. Clever people seek to review the performance of their assets by reviewing the movement from one year to the next, after accounting for income. I haven’t met anyone during my 30 years as an accountant that doesn’t change their lifestyle in some way when the moneyflow and assets increase substantially. So to all of you that say the number doesn’t matter – reflect on the percentage of your assets that you give… Read more »

Melsky
Melsky
12 years ago

I used to read a lot of personal finance blogs and I noticed a lot of people used to have their net worth posted prominently on their page and then when the housing crash hit those were quietly removed.

I don’t track my net worth, I track how much I am making in my business vs how much I am spending.

MattA
MattA
12 years ago

My wife and I rent. We own cars, computers and books. That’s about it. Why bother computing when you own nothing of real value?

getagrip
getagrip
12 years ago

To me the point of networth is really to do a periodic assesment and use it to ask yourself “am I better off financially today than I was a year ago, and why or why not?” You should be able to break it down in general terms. Is my debt less? Are my retirement savings up? Is my home value rising or is it in the crapper? Do I have a bunch more stuff in the house, and who the hell bought that? Did I have to take out loans for a major home repair, or car purchase or other… Read more »

Teaspoon
Teaspoon
12 years ago

When I take into account the amount I owe on my mortgage and my student loans, my net worth is just too depressing to think about. So I tend not to worry about it too much, concentrating instead on saving what I can (I’ve almost reached my emergency fund goal!) and paying off debt as I can. Maybe I’ll pay more attention to my net worth when it’s in the positive–many years from now!

ekrabs
ekrabs
12 years ago

I track my net worth. It’s just something that I use to see roughly where I am and perhaps even what may or may not have gone wrong each month.

I don’t think it’s useless, but I also don’t think that it’s vital. Again, I liken it to a weather barometer. Just something quick and easy that gives you a basic idea of what’s going on.

barnetto
barnetto
12 years ago

I’ve started using gnucash to keep track of my finances. I had never used quicken before so I can’t personally say much about how they compare. But gnucash runs on windows and it is free/open source software so I thought I would chime it and mention it as an alternative to quicken.

TosaJen
TosaJen
12 years ago

One more point about net worth — it’s a “big picture number”. If you only look at the day-to-day or even month-to-month numbers, you don’t really see the overall picture very well. For example, we are currently paying mortgages expenses on two residences and the stock market is scary. However, looking year over year, we’ve only lost 2.5% of our net worth.

The absolute number of that loss looks pretty big (I’m not providing that data here!) which freaks me out a bit, so it’s good to get some perspective of what that loss really means overall.

Tim
Tim
12 years ago

JD, give me all your money and I’ll keep track of its net worth for you. yeah, net worth isn’t so interesting unless there is a purpose to it aside from bragging rights some people may have. i only track deposits because i can see if i’m reaching my goals based off of that. i think adding assets isn’t useful, in determining your worth, because it isn’t necessarily liquid. I agree partially with TosaJen in not taking snapshots in when looking at net worth as a function of reaching long term goals like retirement. I disagree in including assets like… Read more »

TosaJen
TosaJen
12 years ago

Tim — we include assets that we can liquidate, because we envision chucking it all and starting over elsewhere, perhaps on another continent. We put a great deal of money down on the real estate (40% or so), so we include that amount of equity in our planning. The cars are valued at nominal amounts we’d be able to get from them on a quick sale. I also reduce the “value” of the cars annually.

If you don’t ever envision yourself starting over, then including your house in the calculation doesn’t make sense.

Matt Reeves
Matt Reeves
12 years ago

J.D. – I’ve had a lot of experience with performance metrics through my job and one of the big rules I’ve learned to follow is to not monitor any metric unless you plan to take action as a result. I don’t have a specific target for net worth, so I don’t track it. I DID, however, (like you) have a specific target for my emergency fund and monitored that every month until I reached it. Now we have a goal to pay off our mortgage early (also like you), so I do watch that balance, but not necessarily because I’m… Read more »

Ethel
Ethel
12 years ago

I do like Net Worth . . . but I want to switch to a “years & months to part-time retirement” focus soon. Still need to get around to making the chart o’ gettin’ ahead, though – where every X dollars saved represents another month sooner to retirement. X probably isn’t a constant, so that will make things more difficult. It should be lower early on, due to compounding, and will be essentially 1-to-1 for the monthly mortgage cost as the date gets closer 🙂 Net Worth is nice because it’s a broader view. I think of it as a… Read more »

Rick Francis
Rick Francis
12 years ago

@MattA Calculating net worth makes it clear that you own nothing of real value, and that should be a frightening wakeup call! Net worth is a complete measure of how you are doing financially. I agree knowing the individual components can be useful too however, neglecting the total can be dangerous. For example if you only focus on debt you may feel pretty good about having no debt, but what about the savings side of the equation? @Steve etc I think that being debt free is overrated. If your only debt is your house and its worth more than the… Read more »

JT
JT
12 years ago

Right now I’m hesitant to track my networth for several reasons:

A. Moved and took a financial hit being unemployed for awhile.
B. Deployment in a few months changes everything.
C. Still finding financial items that have my name and my mother’s name that I did not know about.

F2O
F2O
12 years ago

Well, I guess I am in the minority. I calculate my net worth to make sure my asset allocation stays in line with what I want it to be. For example, last year my stock options got to a point where they made up (in my mind) an inappropriate % my of total net worth. As a result, I exercised some of the options for cash and reinvested in other areas I thought were a little light. I find this to be important since I have a significant amount of equity in my house. To not include something that substantial… Read more »

rstlne
rstlne
12 years ago

I only include bank balances + investment portfolio in my net worth. There are many things I could sell in a pinch that I haven’t taken into account. Also, I think I too would see the same valuation uncertainty after buying a house.

Daniel
Daniel
12 years ago

Get any undergraduate textbook on accounting and it will contain all the rules about how to keep track of assets and liabilities in the correct way. I’d recommend this one “Essentials of Accounting” now in 9th edition.

Basically the rules are that assets are booked at cost unless they are monetary then you use market value.

Chris Holdheide
Chris Holdheide
12 years ago

I agree that net worth is not the most important number. When I did financial reports for people most never got excited when I showed them there net worth.

Tim
Tim
12 years ago

TosaJen: I can understand people adding liquidable hard assets like houses and cars; however, I do not, because too many variables are required. For example, depending on your car(s) are you going to be able to definitely sell them and what if you need them? presumably you will need some sort of transpo to get to and from work, even if you are restarting your life over. so perhaps a modest car value minus cost of new transpo if going along these lines; house value minus remainder of mortgage is not a good number to me, because HELOC’s aren’t for… Read more »

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