Calculate Your Net Worth Quick!

How did we Start?

Well, we didn’t at first. I clearly remember it was June when I heard my first podcast on financial independence, ChooseFI Pillars of FI, and it was July by the time we started taking those first steps to acknowledge we wanted a change.  Listening to the podcasts provided examples of others that had taken action and achieved their goals of fully funded lifestyle changes or financial independence. But, how did they do it? Where did they start? I’ll tell ya, calculate your net worth.

Our first step to calculating our net worth started by getting a true baseline of where we stood financially.  We had things all over the place…old 401ks at several prior companies, bank accounts at old banks we didn’t use any more, a tiny pension that was no longer being contributed to.  No long term plan. Surprisingly, Mr BA and I couldn’t even agree on when we wanted to retire earlier that year when we started talking with a financial planner. We didn’t know what was possible.   His father was a civil engineer and his mother was a school counselor. Both happily retired in their 60’s. My father worked in printing, graphics design, and other design related fields. He’s still working in his 70s. My mother worked from home as a transcriptionist as well as several different roles in real estate later in life. Also, she still works in real estate at 70.  

My Wish…Be Successful with Money

Mr BA and I visited a financial planner earlier in February of 2018 with the hopes of getting our financial life in order. This trip necessitated pulling together our accounts. For that reason, I rounded things up the best I could using the Mint.com application, but all the accounts were not updating correctly at the time. So, I brought a print out from the mint app with handwritten notes on accounts that weren’t included or crossing out accounts that were duplicated. This was hardly a good example of calculating our net worth! We had some idea of what we had but not a full picture. Not to mention, the picture we had was hardly sustainable to maintain or track month to month.

Financial Planner

In our first discussion, the financial planner asked what our goals were. First, I noted I wished to retire “early” but still had no idea what as possible or how to plan for that goal. However, Mr BA had no goals to speak of at the time and took away the action to think about it.

The second discussion with the financial planner, turned to having her manage our assets for 1% annually which fortunately gave Mr BA pause. Now, I’d like to say it gave me pause as well, but I was so frustrated at the time and didn’t know any better.  Sadly, I was in the camp of ‘maybe we should pay her to manage our assets.’

I really didn’t know any better. All I knew was I wanted to be successful with money now, plan for retirement, and maybe own a house in the mountains some day. And, if 1% is what that took, then maybe it was worth it in the long run. Our plan was for her to help us with the financial planning aspects of our lives. We met with her to obtain a fee for service financial plan, so our head was in the right place when we started. Fortunately she did not pressure us. Not graceful, but we dodged a bullet with inaction. 

Goal Setting and Calculating Net Worth

Fast forward 4 months to June of 2018.  I set my goal of achieving financial independence at 50.  Hearing and reading how other people achieved their goal and the principals of how to do that made everything slow down for me. Like a pause button had been pushed and I could get out of my head and see things for what they were. 

Cut Out the Noise, Hit Pause

It was like an audible whirling around my head ceased to exist. The chatter in my brain got quieter.  That feeling of having to have a new outfit for every outing, holiday, or business trip because I needed a boost of confidence was no longer “required”. That concept of seeing if I had something already that worked “well enough” for whatever I needed could keep me from wasting money. I had more time to start addressing what was going on with our financial life.

• What were we spending at the grocery store? (Granny Smith apples cost how much at Whole Foods!?!)
• What was going on with my pension that was frozen 15 years prior?
• Why did Mr BA still have a retirement account from a summer job in high school?
• What expense ratios were we paying on our accounts?

And, why does ANY of this calculate your net worth stuff matter?

Well, it mattered because we started to get a real baseline/picture of where 20+ years of working had gotten us from a net worth perspective – including all the juicy details we could think of. We included our home in our net worth calculation, but don’t use it for financial independence planning calculations since we plan to live here for most of our lives. I found I like the simplistic single dashboard approach to understanding our net worth. Once I tracked down all the accounts I loaded them to Personal Capital and started a google docs workbook for tracking monthly.

We’ve Been Here Before

This was probably only the 4th time I’ve done that since getting engaged,

• Once to plan for our wedding
• When we planned a cross country move and had to sell our home during the 2008/2009 Financial Crisis
• And, that time we bought 2 new cars at the same time, and,
• Now!

Now we track our progress every month to two months. More on that to come.

Simplify As You Go

As part of our calculate our net worth baseline activities, I consolidated as much as I could at Vanguard. Again, Mr BA is lucky enough to have his 401k and Roth there already, so it made sense to setup my IRA as well as our brokerage accounts there too. The real work occurred when I simplified our portfolio. A couple of times previous I attempted to create an allocation for myself, however I never knew how to pick the investments. It was like shooting in the dark for me.   I didn’t have any idea about expense ratios or index funds. That’s where the ChooseFI podcast came in with their guest J.L. Collins and others explaining the simplicity and benefits of Index Fund investing (I highly recommend reading his Stock Series for context or his book ‘The Simple Path to Wealth’.)

Again, the whirling around my head slowed and it was easier to complete the task of rolling over old 401k funds to Vanguard because I knew to look for broad market index funds and scrutinize the expense ratios. This principle helped both with IRA rollovers, as well as allocating what we invested in for 401k and other brokerage accounts. 

Taking time to calculate our net worth was our first step on the financial independence journey and something we look after monthly. I’ve made a simple checklist of things to pull together as you create your own net worth. At this point, get started quickly by making a list of assets and liabilities to track down. 

How to Calculate Your Net Worth

Assets: 

• Savings & checking accounts
• Cash, bonds, Certificates of Deposit (CDs)
• 401k, 403b
• Pensions – look at pension calculators to get a good idea of value. Pick a starting point. Evasive you can always adjust.
• Brokerage accounts, long term incentives, stock
• Real Estate (homes, rental properties and cash flow statements) – you may need to get estimates if you don’t have a recent appraisal
• Income streams (Businesses, Royalties)
• Cash value of life insurance policies
• Anything with value that you are looking to sell (like cars, collections)

Liabilities (or debts): 

• Loans (like mortgages, car loans, lines of credit in use, boat loans, student loans, personal loans)
• Credit Cards balances
• Major outstanding bills (like Medical or taxes)

Once you have these things in hand, you can start summing up your assets and liabilities. Next, subtract your liabilities from your assets.  You don’t need anything more fancy than that. However, if you are looking for excel template, check out the one provided by the Mad Fientist. We use a version of his workbook which is fantastic and easy to customize.  

Automation

You can also enter your accounts into Mint.com or Personal Capital. I like both of these applications for different reasons. 

• Mint for tracking expenses
• Personal Capital for historical tracking of each account. I love how I can go back to any date in the past and see what the value was since I’ve been using the application.

For many years, we used Mint.com for net worth which is why I mentioned it. This app is a great one stop shop to get a view of your financial picture all in one place. It updates automatically once you set it up with minimal additional tweaking month to month. Plus, its very easy to open it up and update your net worth spreadsheet on a regular basis. Recently, I added in Personal Capital and it’s made tracking our net worth much easier since we can see what our account values were at the end of the month. Personal Capital is also great for long term planning. 

Bottom Line – Calculate Your Net Worth Now!

If you haven’t already, start gathering up the components of your net worth and create a spreadsheet or use an application to start tracking your net worth on a regular basis. No need to over complicate things. However, once you start you can always refine as your add to your understanding of your net worth. It may be positive or negative and that’s okay. It’s better to know than not know. You can use it to track your progress year to year and hopefully see an upward trend.  Does your partner or spouse take care of this for you? Ask them to review it with you on a regular basis – that could be quarterly or even annually, but start to get familiar. 

Now, what’s the first thing you did when you started down the path to financial independence ? How did you pull your financial picture together? Did you start right away or what was the motivating factor for you?  Leave me a comment below.

Looking for other great books? Check out my Recommended Books page.