If You Can Only Do One Thing

Life is busy, I get it.  The last thing you need is one more thing on your to do list.

Mastering your finances seems really time consuming and complicated.  I tried to simplify it as much as I could for you but it ended up being 12 steps to a kick a$$ life.  And those 12 steps didn’t include some really important things that help us move through the steps more quickly like figuring out your why and tracking your net worth.  And it didn’t include things like making a will and getting life insurance which are critical if anyone depends on your income or in-home work.

If I had to pick one thing to have everyone do (after getting life insurance*) it would be to calculate your net worth.  Your net worth is like a business’s balance sheet.  What you own minus what you owe.  Calculating my net worth kept my eye on the prize and was my secret weapon to achieving early retirement.  Once you start tracking it, your mind automatically thinks differently about earning and spending decisions–you want your net worth to go up each month.

Net Worth = What I Own – What I Owe

What I Own–add up:

  • Bank balances-include checking, savings, cd’s etc. take the balance from your register so it includes any amounts that aren’t reflected in your bank’s balance yet.
  • Retirement accounts – the amount of your balance that is vested (this is the amount you would have if you left your job today).
  • Homes-check Zillow.com to get an idea what it is worth.  Include 90% of what you think your home would sell for because it can cost about 10% to sell a home.
  • Cars, boats and toys-check Edmunds.com for car values, estimate the others.
  • Other-some people include the value of electronics, jewelry and other personal items in their net worth. I do not include these because I want my net worth to go down if I buy something–this discourages spending.  It is also pretty complicated to figure out how much you could sell these things for.

What I Owe–add up:

  • Credit card balances
  • Any personal loans for furniture, cars, boats, toys etc.
  • Mortgage
  • Student loans
  • Anything else you owe

Take what you own and subtract what you owe and you have your net worth.

Whew!  Congratulations on calculating your net worth!  I promise it gets easier.  You can simplify the calculation by excluding some things you own–I don’t include car and boat values in mine because we don’t owe anything on them. And there’s no need to adjust home and car values each time you do it–update them every three months or once a year.

I budget and calculate my net worth monthly.  My annual budget shows what my net worth should be at the end of the year if I keep my earnings and spending on track and if my investments give me a reasonable rate of return.  I keep an eye on what caused my net worth to vary from my budget by calculating the variances.  Here are my February, 2017 variances:

February variance

At the end of February, my year to date (YTD) net worth was $41,296 better than I budgeted!  Income is super easy to budget when you have none 🙂  My expenses are under budget by $2,200 and the stock market is killing it so my investments are way better than budget.

When I started calculating my net worth, it changed how I thought about purchases.  I had a new filter–was this purchase worth the impact on my net worth? If it wasn’t worth it, I’d rather see my net worth grow because that net worth gave me stability, choice and, ultimately, FREEDOM!

If you don’t think you have the talent for this–it’s just addition and subtraction.

If you don’t think you have the time for this–think about how much time you spend keeping up with Facebook, Pinterest, Twitter or the Kardashians.  Could some of that time be better spent looking after your future?

* If anyone depends on your income or your work in the home, you must, must, must have life insurance–seriously, stop reading this and get it now.  Term insurance is cheapest and works fine–NerdWallet.com can help you.  Stuff happens–protect your family.

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Author: Ms. Liz

A CPA, I retired at 51 and I am helping people create their fantastic futures!

10 thoughts on “If You Can Only Do One Thing”

  1. I like this suggestion! I think I’ll also start doing monthly monitoring of my net worth. After all, I have my sights set on getting to that 1M mark in the next 10 years.. about 900K growth! It can be done but I’ll need to be intentional. If I may add something, I’d suggest the second most important thing to do to prosper is create a monthly spending plan(budget) for your money. What do you think?

    1. Hi Michael,

      I’m glad you’re going to start tracking your net worth–it will definitely help to keep your eye on the prize! Read Jenny’s comment below for a great tip on a tool that will help.

      I completely agree that creating a budget or paying yourself first is vital as well. I started making an annual budget when I started my second year of college and have had one ever since. Now that you’re going to be tracking your net worth, try budgeting it too. It’s fun (if you’re geeky like me) to see in January what your net worth should look like at the end of the year if you keep your spending on track (and the market cooperates!).

      It sounds like you’re doing great and will be at that million mark before you know it!

  2. Thanks, Liz. We started doing this a few months ago when our son introduced us to the Personal Capital App for our iPhone. Once you’ve entered all your account info, it gives you real time net worth any time you wish. Saves checking individual accounts too – it’s all there. At first I was a little apprehensive about putting all our financial information in one place, but he had done his research and reassured me that it was safe. I love it!

    1. Hi Jenny,

      I love Personal Capital too! I like that I can quickly see my net worth and, I confess, I look at it too often when the market is soaring as it has recently. I looked into the security of the site and also got comfortable about putting my information in one place. It can be a bit time consuming to set up the first time but was definitely worth it for me.

      I haven’t recommended them on the blog because of the data risk. The bad guys keep getting trickier so I feel everyone needs to research that risk and get comfortable with it (or not) on their own.

      Thanks for your support of my little blog–I always love to hear from you!

  3. Thanks for the reminder Ms. Liz. At the beginning of the year I thought I would calculate my net worth every quarter, but now I see the wisdom in doing to monthly. In fact I just did it! I am also adding this to my list of financial tasks for each month. Luckily it’s pretty easy for me right now as I don’t own anything and I don’t have any debt— I was impressed with the increase from 1/1/17 to today and am interested to see the growth over the year.

    1. Great job to you for calculating it! I do think it helps me stay motivated to budget it and calculate it each month. It keeps it more top of mind when I’m making spending decisions. Now we can be monthly net worth buddies 🙂

      Hopefully we can hold our gains through the end of the year but if we don’t, just look at it as if stocks are on sale and you’re buying more with each 401k contribution.

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