Using a net worth tracker to keep on top of the money and assets you own, what you owe and your general financial situation will help you reach your goals more quickly. Let’s learn about what ‘net worth’ means, why tracking net worth is important, and some tools that can help you keep on top of your financial situation quickly, easily and simply.
Read on to learn about using a net worth tracker for you and your family.
What Does Net Worth Mean?
Before I get into the details on how to use different tools to track net worth and actually using a net worth tracker, I need to define the term ‘net worth.’ Maybe you’ve heard the term before when you quickly read a tabloid about a celebrity. Many articles talk about their ‘net worth’ reaching a certain number. Here’s a fact: everyone, not just celebrities, have a net worth. It’s incredibly important for everyone to know what theirs is, regardless as to whether you’re a multi-millionaire or a millennial with an average income. I’ll get into exactly why shortly.
‘Net worth’ simply means the difference between what someone owns versus owes in the financial sense of the term. Someone may own any of the following, also known as their assets:
Assets – ‘Own’
- Cash in checking accounts, savings accounts, physical cash
- Investment (stocks, bonds, ETFs) value
- Cryptocurrency value
On the other hand, someone may owe one or more of the following, also known as liabilities:
Liabilities – ‘Owe’
- Credit card debt
- Mortgage repayment
- Student loans
- Personal loans
- Lines of credit
Key Reasons Why Tracking Net Worth Matters
Why does net worth tracking matter? Why should you even care about it? “Oh.. just one more task to add to my ever-increasing to-do list!” you might say. Hear me out – when you track your net worth, you’ll benefit greatly. Here are some of the benefits of knowing your net worth, continuing to track it and using it as a tool to help you reach your financial goals:
- Knowing Your Monthly Income and Expenses
- Becoming Aware of Your Cash Assets
- Knowing Your Investments
- Understanding Your Debt
Let’s get into how becoming aware of each category can help you create a plan and a better long-term financial situation!
In this article, I’ll give an example of Rachelle, a 38-year-old single woman with a 7-year-old child who wants to track her net worth. I’ll walk you through the steps and a case study of what Rachelle will do to track her net worth after having assessed how much she owns and owes.
In my example, I’ll calculate how much Rachelle has in each category (owns versus owes). Next, I’ll show you how she determines how much she needs to save, invest and pay off towards debt each month. This will be useful because these numbers will help her calculate her net worth on a monthly basis.
1. Knowing Your Monthly Income and Expenses
Knowledge is power in any area of our lives! When you know how much money you make after tax and your average monthly expenses, you’ll be able to create a plan and track your net worth a lot easier.
Monthly Income
First, take a look at your last pay stub and check the after-tax amount. If you’re self-employed, take a look at the last 3 months of your income. Add each month of your total pay before tax together, then divide it by 3 to get an average. If you pay tax later on, take the average tax amount off your average income from the last 3 months. Why 3 months? This is a good way to see how much you make over a longer period of time. If you want to be even more accurate or you income fluctuates a lot, calculate the average of the last 6 months of your net income instead.
Now you ‘know your number!’
Monthly Expenses
Next, take a tally of your monthly expenses. This includes two major categories: fixed expenses and variable expenses. Fixed expenses are those that are the same amount every month. Since they cost the same each month or time they come due, they are easy to plan for. On the other hand, variable expenses change every month. Variable expenses can also include needs like groceries – they may be around the same cost per month, but they’ll never be the same amount.
- Fixed expenses – mortgage/rent payment, car payment, real estate taxes
- Variable expenses – groceries, gas, dining out
From here, you’ll be able to figure out how much you have left to save, invest and pay towards any debt after covering your expenses.
How do you go about doing this? Subtracting your expenses from your income.
Let’s say that Rachelle makes $4,600 a month after tax. Her fixed and variable expenses equate to $2,000 and $500 respectively. Therefore, her regular expenses are a total of $2,500 per month.
$4,600 – $2,500 = $2,100 leftover at the end of the month. This is the amount Rachelle has leftover for saving, investing and debt repayment.
Why is understanding your monthly expenses important? Simple: you can calculate how much you can actually save and invest after you’ve covered your expenses, and, subsequently, know how much your net worth can grow over time.
Next, let’s get into knowing how much you own and owe. As a result of understanding how much cash, investments and debt you have, you’ll be able to track your net worth more accurately.
2. Becoming Aware of Your Cash Assets
Emergency Savings in Cash
Take a look at how much you have sitting around in cash. This includes physical money and what’s in your checking and savings accounts. In general, you should have enough cash to float a couple months’ worth of expenses in a checking account, 3-6 months of cash for an emergency fund, and savings accounts for specific goals – also known as sinking funds.
If you have more than 6 months of living expenses saved up in cash, you may want to investigate moving those funds to another place such as another savings account (sinking fund) for an upcoming goal, invest it, or pay off any debt. Why? Generally, it’s not a good idea to keep to much cash sitting in a bank account that you aren’t using in the short-term. This is due to your money losing its value due to inflation. Over time, as goods and services’ prices increase, your purchasing power decreases.
Other Cash Savings Accounts
Next, take a look at your sinking funds. A sinking fund is a savings account designated towards a specific goal, such as a vacation or a new (or used) car. Each month, you’ll set aside a specific amount of money towards your goal. For example, if you have a weekend getaway coming up you estimate will cost $1000 after having done some trip budget planning, set aside $200 per month towards trip expenses. If you want to purchase a home, you can create a property sinking fund and set aside money each month towards the down payment.
Since Rachelle’s monthly expenses are $2500, she’ll want a maximum of $17,500 ($2,500 x 6) in a cash account for emergencies. Since she currently has $20,000 and she wants to go on a big European vacation next year that’ll cost over $3000, Rachelle transfers the $2,500 from her emergency fund to her sinking fund savings account for this goal.
Now Rachelle has:
- $17,500 in an emergency savings account
- $2,500 in her sinking fund account for her Europe trip
Total cash = $20,000
3. Knowing Your Investments
Next, it’s time to take an inventory of your investments. This includes retirement accounts, education investment accounts and real estate. Determine:
- The account balance in each or current value of the asset (if it’s real estate)
- How much you’ll need to invest per month to reach your financial goals.
Then, you’ll need to determine the rate of return per month or year on each investment. Confused? Contact your financial advisor to help you find out more information about your investments. If you know the rate of return, say, 7% per year, you can put this into a compound interest calculator online along with the current balance of your account, how much you’ll invest per month and for how many years.
Let’s say that Rachelle has two investment accounts: a retirement account and an education investment account for her child’s college fund.
Rachelle has $150,000 in her retirement account and $20,000 in the education account.
Rachelle uses an online compound interest calculator and also consults a financial advisor. She finds out that the rate of return is 7% per year on each account. After consulting online tools and her advisor, she finds out that she needs just over $1 million to retire comfortably in 27 years. She determines that she’ll need to invest $250 per month towards her retirement per month. Additionally, she’ll need to invest $350 per month toward her child’s education when he needs it in 11 years as her goal is having over $100,000 when the time comes.
If you have any real estate assets, contact a property appraiser or check your most recent property assessment statement to know the current value of your home or any property you own but don’t live in.
Total investments: $150,000 + $20,000 = $170,000
4. Understanding Your Debt
The final step: calculating your debt. How much do you owe on your credit card, including interest? How much do you have in a mortgage? If you have any debt, consult a financial advisor to determine a payment plan.
In our case study, Rachelle has $120,000 left on her mortgage. She makes a $1,000 payment per month towards this. She also has $6,000 left on a car payment. Rachelle aims to pay the car off in full in 15 months.
$6,000 / 15 months = $400
Therefore, she determines that she’ll need to pay $400 towards this to have it paid off in 15 months.
Total debt = $120,000 + $6,000 = $126,000
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How Do You Track Your Net Worth?
In our case study, let’s take the assets less her liabilities and see how she’ll use her knowledge of what she owes and owns to track net worth.
Assets
- Cash: $20,000
- Investments: $170,000
Total = $190,000
Liabilities
- Mortgage: $120,000
- Car payment: $6,000
Total = $126,000
Net worth = Assets – Liabilities
$190,000 – $126,000 = $64,000
Therefore, Rachelle’s net worth is $64,000. This is the starting point for her to track how much she puts towards regular expenses, saving, investing and debt repayments each month.
Next, recall that Rachelle needs to pay the following bills. I’ve included regular monthly expenses as a ‘bill’ because it’s something she has to pay every month.
- Monthly expenses: $2,500
- Vacation savings: $100 Since Rachelle already has the $2,500 saved that she moved from her emergency savings account, she only needs another $500 for her trip, since she estimates it’ll cost $3,000. Once she’s finished saving up, she’ll continue saving $100 per month for a smaller weekend trip in the future.
- Investing for retirement: $250
- Investing for education: $350
- Mortgage repayment: $1,000 mortgage payment
- Car repayment: $400
Total = $4,600, the same amount as her income after tax. We’ve used the zero-dollar budgeting strategy, where every dollar is put to use, whether saved, spent or invested.
Rachelle can now plug the following numbers into a net worth tracker:
- The current value of each account as calculated earlier in this article
- Her income, regular expenses, saving, investing and debt repayment ($4,600 total)
Best Net Worth Trackers
Net Worth Templates
The fun part – now that you’ve got the numbers down and a strategy, it’s time to choose a net worth tracker! Check out Pinterest for a variety of fun templates! There are many net worth trackers, so feel free to find a net worth template that you like. You can also use a net worth spreadsheet – check Pinterest for these as well.
Keep in mind that because almost all investments and savings accounts carry rates of return higher than 0%, you’ll want to periodically go in and manually adjust the balance in your net worth tracker. This is because when you’re investing, your assets will increase in value over time (they will sometimes decrease in the short-term as well).
For me, I like to check the balance on my monthly statements and change the number on my net worth tracker based on my account balance that day for whichever saving and investing accounts I have.
Net Worth Tracker Apps
If a tracker doesn’t suit your fancy, check out a net worth tracker app like Mint. Apps are great because you can check them while you’re doing other tasks on your phone. Many apps let you link your bank account to them so you can get a real-time, up to date snapshot of your net worth.
Tips For Increasing Your Net Worth
Increasing Your Income
There are so many ways to make extra cash these days. Why not take up a side hustle? If you work from home or have kids at home, you can easily find a couple hours of work per day to keep you occupied and make some extra cash.
Feeling entrepreneurial? Why not look into selling Canva templates or opening an Etsy business? You can also check out paid market research online. Many companies offer paid market research focus groups where you can be paid over $100 for an hour of your time. Take the extra money and increased cash flow and put it to good by investing it at the end of every month. Don’t let it sit in your checking account so you’re tempted to spend all of it!
Do feel free to treat yourself every once in a while though. Why not set aside an extra $50 for some takeout or that new skincare product you’ve been eyeing? Life is all about balance.
Frugal and Intentional Living
Ever looked into frugal living practices? Living frugally doesn’t mean you’re being cheap – it just means that you’re spending money on quality items and things that bring you joy.
Check out this article for tips on being frugal.
Additionally, slowing down and appreciating life can help you enjoy the little things in life. When you appreciate the small joys that happen to you every day, you may spend less money. For example, if you commit to brewing a cup of coffee and enjoying it on your back deck every morning when the sun comes out, it’s less likely that you’ll be running to Starbucks every morning. If you can appreciate the free things you experience, you may spend less time seeking out stimulation from material things that cost money. If you’re consistently saving some extra money from simple living, you can put the extra cash to work in an investment account and grow the money over time, therefore, growing your net worth over time!
Intentional Saving, Investing and Debt Repayment
Aside from increasing your net worth by making more money and practicing frugal living, why not try budgeting or tracking savings? Becoming more conscious of your spending can help you save a lot. It’s so easy to just go to the drive-through for lunch or a coffee. There’s nothing wrong with an occasional treat or a designated ‘takeout and coffee day’ once or twice per week. However, if it becomes a habit multiple times a week, these numbers really add up. Spend some time alone or with your family to plan out:
- How much money you make after tax
- What you spend money on
- What you need to keep spending money on
- Areas you can cut down on – like ordering less takeout, coffee and staying in more
You can also undertake budget planning for special occasions – like travel! While it’s important to not obsess over every single dollar you make and cut corners with your finances, the more you track, the more you’ll be able to know and hit your goals!
Conclusion – Net Worth Tracker
Now that I’ve defined what ‘net worth’ is, how to calculate yours and how to use a net worth tracker, it’s time for you to take action! Check out the hundreds of amazing net worth tracker templates available on Pinterest and choose one you like.
Stick it in a visible place in your home so you remember to keep it up-to-date. If you’re going digital, write a note and stick it on your fridge, reminding yourself to go into your tracker on your computer and update it regularly. Choose a regular date and time to keep your tracker updated.
Once you see your net worth grow and stick to saving for fun goals like a trip or other treat, you won’t want to stop! Building wealth can be fun if you can get creative and reward yourself for your efforts.
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
