While many people pay attention to their credit score and will even pay to find out what it is, fewer people calculate their personal net worth. Retirement success means setting up an adequate retirement income. Pensions and Social Security are a good first step. But in most cases some of your retirement income must be generated by other assets. Here are three reasons personal net worth is good metric to monitor to help get you there.
1. Net worth is a measure of overall financial progress. Personal net worth is determined by subtracting your debts from your assets. The final number is an important indicator of whether your overall financial planning (saving and investing) and discipline (debt management) is successful. An increase in the value of your retirement nest egg is helpful, but only if it is not offset by an increase in your debt load.
2. Net worth monitoring is a daily incentive, reminder, and confidence builder. I look at our net worth every day. Some would call this overkill. I call it an important incentive and reminder to do something positive each day to improve our retirement finances. Watching this number can also boost my confidence and mood. For example, if the stock market drops but our net worth remains relatively stable, it reassures me that our retirement assets including real estate and cash positions are properly allocated. Conversely, it can also tell me that a change may need to be made, which is also a benefit.
3. Personal net worth monitoring is free and easy. There is nothing difficult or mysterious about monitoring your net worth. It’s also free. I have created a spreadsheet that lists all of our assets and liabilities by category. I use a Google Docs spreadsheet because it allows me to insert a link from our investment holdings to Google Finance for real-time stock and mutual fund valuations. This means that the dollar values of our retirement investments are automatically updated. I can link to the spreadsheet from any browser and check the data from any computer at any time. I also create links from the spreadsheet to the online log-in screens for our bank accounts. Updating the spreadsheet to provide an accurate net worth number takes no more than five minutes.
If you are not watching your personal net worth on a regular basis, you are skipping an important step in preparing for retirement.
Mark Patterson is an engineer, patent attorney, baby boomer, and author of The Failsafe Retirement System. He blogs on matters of personal finance and retirement planning at Tough Money Love and Go To Retirement.