In 2003, I started tracking my net worth and financial development online. I had recently come to the conclusion that if I let my life continue in the direction it had be going, I'd end up deep in debt without a prospect of earning my way out of the hole. I decided it was important for my future well-being to change my approach to money and track my progress online.
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Over the past seven years, I went from having a small checking account, no investments, and credit card debt to having a full emergency fund, savings accounts designated for a variety of short-term needs, investments for long-term needs including retirement, and no debt. I attribute part of that progress to keeping myself accountable through focusing on the details and sharing my finances with the world.
With tools like Mint and NetWorthIQ, tracking and sharing financial progress is easier than it has ever been, but the publicity isn't for everyone. In fact, in some cases, the obsession with net worth can be damaging. Here are suggestions for maintaining an updated net worth without discouraging yourself.
1. Decide how you want to calculate your financial worth. An accountant would tell you there's only one way to determine your net worth: take all of your assets and subtract all of your liabilities. For example, your house is an asset and your mortgage is a liability, so you would include the value of each of thse in the equation. By these rules, your car, your household inventory, and your coin collection all count as assets. You may not find it worthwhile to track the value, particularly if you expect to never sell those items.
2. Don't compare yourself with others. Everyone wants to know whether they're on the right track. It's tempting to want to compare your progress with your peers. Once in a while, the financial news cycle releases surveys that show the average net worth of a variety of age groups. According to one of these surveys, the median net worth of American households where the oldest in the house is between the ages of 20 and 29 is $5,550. Break the top 5 percent in this age group would require a net worth of $100,600.
There are too many variables to make this information useful. You could have just finished graduate school with tens of thousands of dollars of debt and a six-figure salary lined up. You may be poised for greater long-term success than the average person your age, even if your net worth doesn't show it.
3. Don't overdo it. There is value to tracking every penny you spend. When I wanted to turn my finances around, I used Quicken and a notepad. I entered every receipt I received into the software, and when I didn't get a receipt while spending cash, I noted the information on a notepad to help me remember later. This allowed me to have a fully accurate picture of my spending for making decisions about cutting back to spend less than I earn.
This is a good idea for people whose spending is approaching or exceeding their available cash each month. However, if there is enough wiggle room, it may not be worth the extra effort to track every penny. If you're honest with yourself, estimations may be good enough. Now that I am in a much more secure financial situation, I don't track my cash spending at all.
4. Make decisions with your finances in mind. The answer to every question is not always whatever will result in the largest increase of net worth, but financial health should play at least a small role in every decision. Tracking your finances, especially if you're inclined to do so publicly, can encourage you to make decisions that are in your best interest.
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Money and stress are often linked. When you know you're in a financial situation that could stand to see improvement, you don't want to introduce more stress than necessary. Both ignoring your net worth and obsessing over it will be harmful to your long-term stability. Take prudent steps to manage your finances by tracking expenses and income only to the point you feel necessary.
Luke Landes writes for Consumerism Commentary, where he encourages discussions about money and consumer issues. Consumerism Commentary regularly tracks and reviews the best online savings accounts and other financial products.