By: Revanche

Should I continue measuring my net worth?

May 6, 2008

Each month, I round up all my expenses and work out the total of what I grandly call my net worth. A lot of bloggers do it, in one form or another. Actually, I call mine “snapshots” because they’re just a quick glimpse at my ever-fluctuating expense and income sheets. In a way, I like that the numbers continually change, especially since I get bored so easily. Activity isn’t always a good thing, though, as noted by the massive reductions in net worth during the BroDucky debacle. Let me emphasize how I never want to spend so much for so little again. 😛

Every month, I put together these snapshots, but I don’t actually have a net worth goal. And keeping track of numbers without an actual goal seems rather halfhearted. I do have annual savings goals, as you can see by my sidebars, but I don’t have an overall net worth goal. Part of this is because the savings goals are both saving and spending goals. A good half of my goals pertain to a future purchase or expenditure: car maintenance, home ownership, auto payoff. The other half are for retirement (completely untouchable), emergencies (almost always untouchable), and mistakes (only if it’s serious).

Between the two, it seems like I’m just saving to spend. Oh, that’s not really the case, I’ll still have the savings at the end of a long hard day, but the half and half structure of my goals implies that this isn’t all about holding on to my putative wealth. In that light, “net worth” doesn’t seem applicable unless I have something more concrete than the employer retirement funds and cash in a savings account. Some things more like CDs, and savings bonds, and property. An actual stock portfolio, at some point. You know, grown-up things. So again, what’s the point of tracking my net worth?

After all, it can be very subjective. You can choose to include or exclude any number of possessions or holdings that you deem worthy or not of being considered. I leave out my automobiles entirely because it’s a bit too complicated to include them. I don’t plan to sell my personal vehicle ever, and the family sedan, which is not my financial responsibility, is still being paid off. Still, if something happened to it, you betcha I’ll be the one who has to figure out a replacement. Same goes for personal loans. I only started including those because I’m getting forgetful, and didn’t want to lose track of them entirely. One of the reasons I’m leery of including any possessions is the idea that possessions only have value to me. If I lose or break something, I have to replace it at a cost to myself. It’s highly unlikely, in the general scheme of things, that my possessions will be worth anything to anyone else. Barring selling large ticket items, of course. But my point is, things are primarily a liability. More often, I’ll have to replace things, not make money from them.

So, why track a seemingly artificial net worth? In part, accountability. As long as I see steady progress, or lack thereof, in the form of numbers from one time period to the next, I have to stay on track. Some kind of track. And if I keep the variables constant, then the change in amounts is a valid indicator of circumstances. Just because I don’t include my possessions doesn’t mean my financial holdings aren’t real.

The other part, motivation. Seeing the numbers makes the whole game of finances, bargain shopping, and frugality more real. It’s not just theory, it’s life in action. If I were to be completely objective, I’d be proud of myself for going from working to pay off my family’s debt (credit cards, car payments, personal loans), to actually building a cash cushion, putting a decent amount away for later, and generally making some progress. It’s harder to see that, though, on those bleak days when all I can think of is the $18,000 I foolishly lent and lost, the entire salary of my 4 college years going towards bills bill and more bills, and most of my post-college salary going towards not me. I can only see the other side of the coin if I actually keep track of it.

It’s all too easy to forget that the grind can actually produce results, and to keep going because we’re going to make it. I look at the accomplishments of fellow bloggers, and I’m A-M-A-Z-E-D. And you know what? Seeing my numbers keeps me honest. I can finally be happy for what I’ve done here these past two years, too. Combine that with the realizations that it’s ok to be free, that it’s ok to live, and I’m going to say, not too shabby, really!

So, let’s keep on with the net worth! It doesn’t define me, and it may not truly define my “wealth” but it’s a good way to keep me truckin’ from milestone to milestone.

3 Responses to “Should I continue measuring my net worth?”

  1. Matt says:

    A net worth is exactly what you called it a snapshot but even that can have its usefulness when striving towards a goal. I’m actually very impressed as I see the changes on other peoples blogs and the successes they’ve had.

    I stopped calculating mine for a while because there was no movement and I was (and still am) wrestling with the idea of putting up a detailed cash flow which I prefer when looking at my finances.

  2. mOOm says:

    I find net worth a useful milestone that somehow is easier to work towards than setting a given annual savings goal. But that’s subjective. You’ve got your savings goals, work out which of those are for things that won’t be spent this year and add them to your net worth to get your goal for the year. Hopefully, there’ll be some gain in your retirement account and you’ll beat the goal 🙂

    It also helps to compare to others of similar age and income and see how well you are doing.

    Almost everyone considers a house as part of net worth – if you own a house you don’t need to pay rent and everyone needs to live somewhere and so implicitly it’s an income producing asset. Certainly, the land can be considered an investment from any point of view, even if the structure is depreciating and requires maintenance etc.

    We do include our car in our net worth, mainly because I was loathe to write off that much from our net worth in one shot when we bought it in October but also because if we borrowed money to buy the car we wouldn’t have written it all off in one shot. I include the depreciation and a notional interest amount (the cost of money tied up in the car) in our monthly spending figure. In an emergency we could sell it and get what I am listing it for and someday we likely will sell it and get another one before it is worth zero. Our other possessions are not worth counting as we are not going to sell them and/or they’re not worth much secondhand.

  3. ~matt~ The perception of lack of progress what was kept me from tracking a net worth for so long. It seemed like I was spending all this time at zero, or in debt because of others’ debt, but starting to track it when I started making progress was very complementary to accomplishing goals.

    ~moom~ I like that idea. I’ll try splitting out the short term goals and leaving the long term savings as part of the net worth.

    It does make sense to include at least the truck since I include the debt owed on the truck as part of my liabilities. The confounding factor there is wondering if I will get the KBB value on it, and I don’t like that uncertainty in my net worth. So far, it’s been easier to take the hit on the debt and leave the asset column blank instead of filling in a guesstimate. With a lot of luck, the truck will be out of the equation by next month’s snapshot, and I’ll only have to consider the inclusion of my car.

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