The other day I was organizing some files, actually trying to throw stuff out. I love that light free feeling when we toss some paperwork we don’t need anymore. Anyway, I found some old files and I realized I had been tracking my net worth since 2003, 15 years!
In 2003 it was a big $16,500 in net worth. Hey, it was a start and at least it was not negative. I had started getting some money in my 401k but owed on some school loans and a car loan which brought the total net worth down.
After 15 years of tracking net worth, this is what I now realize:
1. You’re only competing with yourself
It only matters if you are making steady progress each year compared to ourselves. We spend way too much time comparing ourselves to others. Not sure if it’s ego, survival or whatever. It’s exacerbated by some social media use. Everyone’s situation and circumstances are different. Just focus on outperforming who you were last year.
2. It’s not about a certain number, it’s what works for you
It is fun to make certain net worth goals and try to hit them, but at the end of the day it is only a specific number that works for you and your situation. I am realizing that folks can reach Financial Independence with very different numbers. One popular rule of thumb is to save and invest 25 times your annual spending. Some people can live quite happily on $35k per year. That is saving $875k. With a paid off house and determination this may be more possible than imagined.
3. It may go down some years
Some years I went backwards. Mainly when the great recession hit and housing and stock values were cleaved in half. It might be important to remember that these could be good buying opportunities for quality assets.
4. It’s a great tool to challenge yourself
The practice of tracking your net worth each year is a very valuable tool on your road to financial independence and retirement. Even if your goal is not to retire early, having a sense of your net worth progression each year helps you assess whether or not you may need to make adjustments. An obvious example is if it is negative or zero for too many years in a row. It may be time to reassess the lifestyle.
5. Its pleasurable and entertaining to reach milestones
There is an inherent joy in tracking things and making progress over time. This is just one important example of this practice in life. Tracking progress seems to be an inherent joyful practice for people, so why not enjoy the practice with your own finances.
Frankly in the US you are probably doing really well even if your financial net worth is zero. That’s because there is so much debt. Just make a list and add up all your assets: investments, savings, house value, car, collectibles, etc. subtract all debts from this number and you have estimated net worth. For me this continues to be a powerful tool to manage one aspect of life.