I post a net worth update every month and the update for the month will be coming up soon.
I thought I would post a little bit of information about how I track our net worth.
I always do our net worth on the 7th of the month (give or take a day). The reason for this is because a lot of transactions take place around the 1st of the month, and can take a couple of days to clear. I want to make sure that everything is cleared and in the right accounts, and have found that waiting a couple of days past the first of the month is the best way to make that happen. These things include:
- Mortgage payments
- Credit card payments
- Transfers from end-of-the-month paychecks to savings / money market accounts
The tool that I use is Microsoft Excel. I actually used to use a couple of different tools in the past, but have found that Excel works best for me. The spreadsheet that I have has evolved over time.
Initially, the spreadsheet was created to track my gains/losses back when I was doing some day trading (wasn’t everybody) in the late 90’s. In fact, the spreadsheet is still called Investment Analysis even though I have moved on from my day trading ways, and have evolved the spreadsheet into different things.
I have several different tabs that I utilize.
- Snapshot – This is a snapshot of the most current moth, and it’s broken down into the categories which I will outline in a bit. It summarizes everything that I track and rolls it up into several categories.
- History – I roll up the high level numbers each month into a month-by-month breakdown. This lets me see how things have progressed over time.
- Balance Sheet – This is where I separate the assets from the liabilities (yes, I took lots of accounting classes in college). I have thought about merging this with the History tab, but it has worked out OK so far.
- Debt – This is where I break down our debt and can see the history of how it’s progressed. This is a great tab for me since we have focused a lot of our personal finance goals over the past couple of years around paying off debt. With this, I can quickly look at how long it took to pay off our car loan (23 months on a 48 month loan) or track how our mortgage is paid off a wee bit more each month.
- Savings – I have two accounts with cash savings, an ING Direct Orange Savings account and a GMAC Demand Notes account. This is where I track things like our emergency fund, our savings for the next car, our savings for vacations, furniture, our Christmas gift fund, where we keep money for expected car and home repairs, and things like that. One thing that I’ve always done here is ‘write down’ a portion of the account based on what I know we’ll be spending soon. For example, last year we had built up our home repair fund to do some backyard landscaping. Since I knew that we’d be spending this, I started writing down the amount months before. That way, when we spent the money, it didn’t eat a big chunk of our net worth.
- Monthly Summary – This is a hybrid of an Income Statement and Cash Flow statement that I use to track our bank account activity and spot any trends.
- Ledger – I don’t balance a checkbook. In fact I barely write checks. This is what I use to track our day to day spending activity and to know what we have in our bank account. I reconcile this almost daily with our account.
- In Case of Emergency – I have a tab dedicated to outlining all of the required information in the event that something were to happen to me or my wife, such as account locations, website addresses, etc.
- A few other tabs – I track a few other things such as charitable contributions, dividends paid by our mutual funds, cost basis for our mutual funds. These aren’t used every month but kept pretty up to date, and help around tax time.
With all of this, I have pretty much everything I need all the time. I actually had attempted to use Microsoft Money a few years ago, but felt it actually restricted me and didn’t let me manipulate the numbers to the degree that I like. I tried it for a few months, hoping to be able to phase out the spreadsheet, but ended up phasing out Money instead.
I break our net worth down into the following four major categories:
- Current (Liquid) Assets and Debt
- Retirement Assets
Here’s a breakdown of each of those:
I track the value of our house based on three things: The value reported by CyberHomes, the value reported by Zillow, and my own personal adjustment based on what I’ve noticed in terms of neighborhood sales.
So most recently, I’ve averaged the two and have deducted another 3%.
This gives me the approximate selling value I would expect to receive. However, for net worth purposes, I actually deduct the anticipated selling costs that would be involved with selling the house. So, I write 7.75% off. The reason for this is simple: The only reason I would ever have true interest in the value of my house is if we had to sell it, so I want the value to reflect what we would ‘get’ if we sold it.
From there, I subtract our outstanding mortgage principle to give the total value of our home.
I know there’s a lot of debate about whether to track auto values in your net worth. I lean on the side that tracks it, and the reason is simple: The current value of my car will factor into the next car that we purchase. In other words, one of the two cars that we have is going to partially fund the next car, so I want to know what we can afford.
We have two cars. I use Kelly Blue Book pricing and remove 5%. We do not have any loans, but if we did, I would subtract the car loan balance from the value to come up with our total.
Because cars are depreciating assets, I expect these values to decline every month.
CURRENT (LIQUID) ASSETS AND DEBT
This is where I track anything that is cash or could easily be converted to cash, as well as what we owe for anything outside of the mortgage and car payments.
So, the things that I currently track are:
- Bank Account Checking (asset)
- Bank Account Savings (asset)
- ING & Demand Notes Savings (asset)
- Mutual Funds (asset)
- Outstanding Credit Card balance (debt) – note: we pay our balance in full every month but this tracks the current outstanding balance at the time I do the monthly check
- Student Loans (debt)
I have three 401(k) balances, two from previous employers and one with my current employer. I also have a Roth IRA but haven’t looked into investment ISA opportunities. At some point, I hope to open a Roth IRA under my wife’s name as well.
TOTAL NET WORTH
Once per month, I log into accounts for each of the accounts and enter the numbers. From there, it calculates the value by each category and those totals equal our net worth.
That’s it! Overall, I know it isn’t the perfect system but it works well for me. There are things that I want to improve upon. I’ve got some tabs that I’m working to merge. I also need to figure out a way to clear out old information without making it impossible to review later on. But, for now, it gives me the information I need to know in a way that makes sense and lets me know if we’re making progress and meeting our goals.
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