Glad to have you in the course!
Today we are going to start with the first step of getting your money under control:
tracking it!
Ok we are going to kick things off by helping you calculate your net worth. Don't worry, it is going to be easy, and you can probably do it in about 15 minutes or so.
The reason we are starting with this is because it is how we are going to measure the success of the rest of this course - as well as all the other great financial decisions that you are going to be making from now on! Your net worth is a better way to accurately see the big picture of your finances and it is what financially savvy people use to track their progress.
The simple definition of it is:
Assets (stuff you own) - Liabilities (debts) = Net Worth
To read more about why it is important click here, but if you want to just get started, keep reading!
How to calculate your Net Worth
There are 2 ways that I've used to calculate my net worth. The new way that I have been using is by using Personal Capital.
Basically it is an extremely secure website that allows you to monitor (not make changes) all your financial accounts in one place.
It is completely free to use, and provides a great snapshot of your overall financial picture. It is the quickest and easiest way to calculate your net worth and continually monitor it over time.
If you can't see the images below you may need to hit the link at the top of your email to "display images"
1. Create your free account with Personal Capital
To see more of what they offer for FREE you can click here for a 30-second video.
2. Add all your financial accounts: banking, investments, credit cards, mortgages, etc.
Just click the "+Link" button in the left corner.
Then you will see a popup box that looks like this, and from here you can search for each of your accounts.
Unless you have a ton of accounts, you can probably do this in under 10 minutes and then you will have your net worth nicely displayed to you as you can see in this screenshot below.
And unfortunately, this isn't a screenshot of my personal account (but rather a healthy demo account).
They even have an iPhone app, so you can calculate your Net Worth while you are sitting in the doctor's office.
My Old Method of Net Worth Tracking
Before Personal Capital came along to automate this process, I used to just do it manually every 6 months or so in a spreadsheet. I have created a template from my own balance sheet that you can use if you would like. You can download it here.
1. Get a spreadsheet
First off, you can do this on paper if you really want to, but I suggest Excel, Google docs, Open Office, or really any kind of spreadsheet will do.
2. Total your assets
List every asset you can think of. Anything that you could realistically sell. For the purposes of sanity and simplicity I don't bother with items under about $500. Yea, I am sure I could find someone on Ebay to buy my socks, but I am just looking for a general picture. So I just lump together all these smaller items as one line called "Misc items" and take a conservative guess of what they could be sold for. So your house, cars, retirement accounts, stocks, savings accounts, checking accounts, emergency fund, jewelry, and anything else similar would fall in this category.
To get real estate values you can use Zillow to get a decent estimate of what your home may be worth. For automobiles you can check out Kelley Blue Book to see what they could be sold for. For all your checking, savings, investment accounts you can either check the balances online, or just use your last statement. Once you have them all listed with the estimated selling/liquidation value you can total them up.
3. Total your liabilities
A few lines below the Assets total, we are going to now list every debt you have. Mortgages, credit cards, student loans, they all apply. Do the same as above checking balances on each one and then total your debts to get your liability total.
4. Subtract them
Now you can subtract your liability total from your asset total and viola! You have your Net Worth. Date it and save it.
Now what?
When I first calculated my Net Worth, it was -$13,843.84. This was eye-opening to me. I knew I had a bunch of debt, but didn't realize how below par I was. Regardless of what you number is, just look at it as the starting point. It is from this point that it will become larger.
After we had been working at it for one year it was up nearly $15K to +$746! We were so excited to have a positive Net Worth! Even if it was only $746.
As we kept on working on it, it has just continued to grow. I normally check on my Net Worth two times a year. But if you are working really hard at it and need to see the encouragement of it increasing, do it more! As in just about anything, you are either moving forward, or you are going backwards. If you are increasing your assets by making good buying decisions or minimizing debts your net worth will be growing.
Homework:
Your homework tonight is to calculate your Net Worth using either Personal Capital, a spreadsheet, or a pencil and paper.
Talk to you soon,
Bob
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