My friends, it’s happened.
We have reached a milestone.
WE HAVE A NET WORTH OF ZERO DOLLARS.
Now, I realize that may be an odd thing to celebrate. No, it does not mean that we have zero dollars in our bank account. It just means that we’ve finally reached a point—for the first time in our adult lives—where the amount of money we own is greater than the amount of money we owe.
In other words, I’ve finally received my Big Girl Undies. Next up I need to get some Big Girl Pants by paying off our debt. Then our net worth will really shoot ahead!
According to The College Investor, I’m actually ahead of the eight-ball. The average 30-year-old has a net worth of positive $2,093. We’ve actually gone from a net worth of -$1,011.48 in May to a net worth of +$6,003.37 just two months later. I admit; I did forget to measure June’s net worth, because I was distracted by angry doggos and a hailstorm of flying dog treats (I am training my dog Juno not to be leash-reactive…wish me luck).
Today I’ll tell you all about net worth—what it is and why you should give a damn, how TF to calculate it, and some nifty tools to create your very own personal net worth statement.
Why create a personal net worth statement?
Your net worth is the single-most important metric of your financial life that you can calculate. It’s a tally of how well overall you’re doing.
There are other metrics you can use. For example:
- how much you have in your savings account
- how much debt you have
- your savings rate
- your credit score, etc…
Each of these are important. But net worth is the bomb-diggity because it gives you the most comprehensive overview of your financial situation in one nice, neat, bite-size number. By creating a personal net worth statement—and tracking it over time—you can see exactly how well you’re doing financially.
What goes into a personal net worth statement?
You’ll need to do a bit of prep work before you can create your net worth statement. Don’t get ahead of yourself; you’re not a major businessman-turned-world-leader, after all.
A net worth statement is divided into two simple categories:
This is basically anything of value that you fully own. It includes the sum total of all of your account balances:
- Checking account
- Saving account
- HSA account
- Retirement accounts
- Investment accounts
Now, some people even get fancy with stuff they “own” but still owe money on. For example, if you own a $100,000 house and half of it is paid off, you technically could add $50,000 to your net worth. Huzzah!
We don’t bother with this because a) we don’t own a house anymore, b) our truck is worth approximately a nickel and two dust-bunnies, and c) where does it end? We own a lot of other shit. I ain’t spending all day tallying it all up. I’ve got better things to do, like eat Fruit-By-The-Foot and hard cider.
Besides, money in bank accounts is easily accessible. Money in the form of a home or a vehicle is not.
Liabilities are anything you owe money on—i.e., debt. Dun-dun-duuuun.
Add up the sum total of all your debts—credit cards, student loans, mortgages, personal loans, etc…
Related: Track your debt-payoff journey with the free tool Undebt.it.
How do you create a personal net worth statement?
Got your total amount of assets and liabilities added up?
Great. Now subtract your liabilities from your assets:
Assets – Liabilities = Net Worth
For us, as of this month, it looks like this:
$89,451.33 (assets) – 83,447.96 (liabilities) = $6,003.37
Now, you probably noticed that it took a bit of time to collect all this data. Yes, you can do it by hand each and every single time, but there are better ways.
I like to put mine in an Excel spreadsheet. Mostly because I’m a dork, and spreadsheets still make me happy. Here’s what mine looks like. Notice the three tabs: Assets, Liabilities, and BEHOLD!
Many budgeting programs like YNAB will also calculate your net worth if you add in your retirement accounts, debts, etc… I tend to use YNAB just for its budgeting capabilities. I don’t like that extra information cluttering up the scene, so I don’t use my budgeting program for calculating my net worth.
So far, all of these methods rely on you to add in information automatically each month. But, what if there were a way that you could calculate your net worth automagically?
The future is here!
Personal Capital is an awesome, free, nifty tool that’ll track your net worth for you. Simply sync your accounts and it’ll update your net worth automatically for you each time you log in. I’ve had some problems getting some accounts to link, though, so I still update some information (like my auto loan) manually each month.
Keep your personal net worth statement updated!
What’s really cool about tracking your net worth is that you can see it change over time. You don’t need to wait until you have a positive net worth. In fact, I think it’s more fun if you don’t. That way, you can see the exact moment when you cross over from being in the red (negative net worth) to being in the black (positive net worth).
What do you do when that happens? Print out hundreds of copies of your net worth statement and wallpaper the neighborhood, of course! Or, you could just be like us and celebrate by cracking open an extra beer.
Take back your life!
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