The Importance of Tracking Your Net Worth and Why We Continue to Do So

One of the main reasons people divorce is financial problems. Money is one of the top marriage stressors. If you’re not on the same page financially, it can cause a lot of tension in your relationship.

We were aware of this before getting married, but we also had an early retirement goal in mind.

When we first calculated our FI date, we estimated that it would be in early 2020.

Since our net worth was mostly income-generating assets, it was simple to predict how close we were to our goal simply by looking at the net worth.

How to calculate your net worth

For those that don’t know, your net worth is simply your assets (savings, investments, property, etc) minus your liabilities (debt, loans, credit cards, etc).

The formula for calculating your net worth is:

Assets – Liabilities = Net Worth

For example, if you have a $350,000 house and a $280,000 mortgage, your net worth is $70,000.

If you have a car worth $23,000, a car loan for $25,000, $80,000 in student loans, $10,000 in credit card debt, and $20,000 in the bank, your net worth is negative $72,000.

($23,000 + $20,000) – ($25,000 + 80,0000 + $10,0000) = -$72,000

Once you’ve calculated your net worth, you can use it to help you set financial goals.

For example, if a person has a negative net worth, like in the example above, they might want to concentrate on building up their assets and/or decreasing their liabilities.

Alternatively, if an individual has a positive net worth, they may want to focus on maintaining or increasing that number.

importance of tracking net worth

Why is it important to track your net worth?

A net worth statement can be a helpful tool for individuals who are working to improve their financial health. By tracking their net worth over time, they can see whether their efforts are paying off.

We recommend that everyone calculate their net worth at least once a year so that they can see how they’re doing and make changes as needed.

Why do we still track our net worth after early retirement?

We started tracking our net worth early on in our marriage and that was likely one of the most crucial things we did on our path to early retirement. Some people might think “why bother tracking net worth?”, but for us, it was a key metric in our journey to financial independence. It showed us a snapshot of our assets and whether we were making progress over time.

After we brought down our spending, we kept our paid-off cars and invested as much as we could into our retirement plans.

We didn’t start with much, but we’ve worked hard to increase our net worth ever since.

importance of tracking net worth
We started tracking our net worth diligently in 2013, the year before we got married.

When our assets were down due to a market downturn during our working years, our income helped to increase our net worth as we continued to buy more assets.

Our net worth increased over the next two years after we retired in 2019. It’s fascinating to watch its trajectory due to compounding interest, market growth and reinvestment without any additional job income.

Not all assets fall or rise simultaneously

Not all assets are falling or rising at the same time. For example, we purchased our residence in 2020. Despite the fact that the stock market has fallen since last year, our home’s value has increased by $166,000 since we bought it.

This, in addition to our rental property value, has kept our net worth from plummeting.

importance of tracking net worth

By the time home prices begin to cool, the stock market might recover or something else might be up in our net worth. That’s the beauty of diversifying your assets.

We struck gold by purchasing at that time. If we had waited longer in Pennsylvania, we’d have been priced out of the market and would be renting elsewhere or living in that state right now.

We don’t intend to sell our home, but having excess equity allows us to tap into it through a home equity line of credit (HELOC) if we need extra cash and don’t want to use our stock market investments.

Our property is surrounded by four vacant lots. If given the opportunity, we would like to purchase some or all of these lots. If that opportunity arises, we have this extra credit line to buy more assets.

We’re also not afraid to sell in this market if necessary. Because we’ve been invested for so long, a very significant drop in the markets would be required for us to even begin to lose principal.

We were on the same page

Without consumer debt and low spending, it was much easier to save more than the average.

Overall, our decision to save and invest has paid off, and we’re in a much better position now than we were before.

I had a lot of debt before discovering FIRE. My wife didn’t have any.

However, we were on the same page that we wanted to achieve financial independence. That made it simpler for me to pay off the debt and establish ourselves as a force in the fight for financial independence.

How often did we track our net worth on our path to FIRE?

Tracking our net worth was a great way to see if we were making headway on paying off debt, saving money, and investing. Every month, I would sit down and update our numbers. It was exciting to see how close we were getting to reaching our goal of owning our time.

We still track our net worth today, even though we’ve achieved financial independence. It’s a good way to keep tabs on our investments and make sure we’re not running out of money in early retirement.

importance of tracking net worth

Today, our net worth is still primarily income-producing assets and our home, which has a small mortgage.

I don’t pay attention to mainstream media news, so when I update our net worth on a monthly basis and see a decrease, for example, it’s an opportunity to learn about what’s going on in the financial world.

Is the stock market about to enter a bear or a bull market?

Is the housing market beginning to cool?

Closing thoughts

There are several reasons why you should keep track of your net worth.

For starters, it can provide you with a snapshot of your financial health at a specific point in time. This can be used to help set financial goals or track progress over time. A net worth statement can also assist you in developing realistic financial goals.

If you’re not sure where to start, we recommend using an automated free tool like Mint or Personal Capital to help you get started. You can enter all of your assets and liabilities and they will calculate your net worth for you.

Or, if you prefer spreadsheets, you can create a simple spreadsheet for it.

No matter how you track it, we believe that tracking your net worth is an important part of financial health. It’s helped us stay on top of our finances and measure our progress over time.

If you’re not already tracking your net worth, we recommend that you start today!

How do you feel about keeping track of your net worth? Do you do it on a regular basis? What is your reasoning? Tell us in the comments!

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After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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