Considering I’m a finance coach, it makes sense that I also keep a hawk’s eye on my own finances. In January of 2018, I started tracking my net worth. I’ll get into the specifics of what “net worth” means and why I started tracking it.
First, I want it to be known that while I started tracking my net worth almost two years ago, I’ve been tracking my spending for a lot longer! Tracking your spending and tracking your net worth are two different things, though both are important.
Once you get to a place where your budget and spending are working as intended, it’s time to see your progress on a bigger scale. I hope my story inspires you to see your bigger scale. Continue reading to learn what happened after tracking my net worth for a year.
What is Net Worth?
Before I dive into the impacts tracking my net worth has had, I want to make sure you understand what net worth really means. Net worth is simply the value of everything you own (assets) after any debts (liabilities). Read Finance 101: Calculating Your Net Worth for more.
Because a person can have more debt than money in the bank, a person can also have a negative net worth. As you pay down your debts (credit cards, student loans, mortgages, etc.) and increase your assets (money in the bank, property accumulation, larger investments), you’ll see your net worth move up.
If your debt is increasing and your assets are decreasing, your net worth is decreasing. Vice versa, if your debt is decreasing and your assets are increasing, your net worth is increasing. This is very good information to be aware of, especially if you are trying to make progress in your financial situation.
What Happened After Tracking My Net Worth for a Year
#1 – Amazing Progress
After tracking my net worth for a year, the most important thing that happened was amazing progress! While I’m sure I’d have an idea of the progress I had made, I wouldn’t have been able to see it as easily if I wasn’t tracking my net worth.
From February 2018 to February 2019, my net worth increased by 2000%! I had gotten rid of the last of my consumer debts and purchased a condo within that time frame. I wouldn’t have been able to see that progress if I was only looking at a monthly view of my finances.
Having a true one year’s look allowed me to see what areas had made the most improvement and what areas did not. For me, my liquid assets went down, but my investments went up. At the same time, my debts went down drastically. This all attributed to my overall progress!
#2 – An Enhanced Understanding of My Finances
Another thing that happened after tracking my net worth for a year was an enhanced understanding of my financial situation. Seeing my exact assets month over month, my exact debts month over month, and what that meant for my net worth was huge.
I could use that understanding to take the right steps for the next month. I could see that my savings balances dipped, even though I was saving every month. This meant that I could have been saving every month, but I was taking that money out of savings as well.
Having that understanding of what was happening month over month allowed me to make adjustments moving forward. That’s all financial freedom is anyways – a work in progress!
#3 – Identified Patterns and Trends
The last thing that happened after tracking my net worth over the course of a year was that I had identified patterns and trends in my net worth. For example, I had a drop in net worth every time I traveled. That’s because I would save up for my trips, include that savings as an asset, and then after the trip was over, the savings was gone.
Had I not identified this as a pattern, I may have been hard on myself for seeing a drop in my net worth. Because I understood what happened before and after travel, I could mentally prepare myself for a net worth shift.
It’s also been good to see that my net worth doesn’t necessarily increase every single month, but over the course of the year, it increases drastically. This helps me remember my end goal – financial freedom. I don’t get discouraged if there is a slight dip in my net worth from one month to the next, because I understand my patterns!
How to Track Your Net Worth
Hopefully my experience with tracking my net worth for over a year has convinced you to start doing the same! There is so much useful information to be learned about your financial habits, especially from the point of view of assets and liabilities.
If you’re not sure where to start with tracking your net worth, let me give you a few pointers!
#1 – You can’t go wrong with excel
My net worth tracker is on an excel spreadsheet. I created the first tab from scratch, but every month I duplicate the tab and adjust as necessary. This also helps take the manual calculation aspect out of it! Have a column for your assets, have a column for your liabilities, then subtract the two.
#2 – Include a month over month look
In addition to having the appropriate columns calculated, I make sure to include a % change column as well. This helps me see what happened compared to the previous month. Every year, I’ll add an annual tab use the % change calculation compared to the previous year. What a difference this makes!
#3 – Stay consistent
Your net worth tracker only works if you stay consistent with it. I already have it ingrained in my routine to update my net worth tracker when I set up my budget for the next month. If you haven’t built out the routine yet, add a monthly reminder in your phone so you won’t forget.
Related: 6 Tips to Boost Your Net Worth
There you have it – all of the things that happened after tracking my net worth for a year. If you are currently only starting your journey to financial freedom, I highly recommend you pick up this habit. Don’t hesitate to reach out if you have questions getting your net worth tracker set up! Post a comment below to share your thoughts.
The CGS Team