I have been tracking my net worth since 1995 when it was $0.00 after just getting out of university and getting my first job paying less then 20K a year to now which is just over $600,000. Due to current real estate conditions it has gone down about 100K but I am positive on the investment.

I was shooting to hit the Million before 40 but realistically with current conditions have reset goals for 45.

I agree with Kathryn, it can be great motivator for many. And also agree with Sampson – “it lets you know if you are on a reasonable path towards your goal”. As Sharlock pointed out, every business has various statements (monthly, quarterly, semi-annually, or annually) and corresponding forecasts. So why not treat your personal finance as such? By observing them regularly, you can make informed business (personal finance) decisions.

Four Pillars: I have to disagree with your comments about NOT having control over your house and investments. Of course, the house price fluctuation you cannot control, but you can always sell your house. No one is stopping you from doing that. Good example being US foreclosure mess. By keeping track of your net worth, perhaps some people might cut the loss when dropped 10% below your purchased price instead of finding out year later when dropped 50%. And you definitely should be able to minimize the fluctuation in your investment. You can always position yourself conservatively when the market volatility increases. In my net worth statement, it is more comforting to know that I’m down 5% instead of 50-60% that the market experienced recently. No one can look after your investments like you do. (At least I’ve learned something from 2001 Tech Bust…lol)

Also, I’m not sure if I understand your $800k and $250k house example. If FT’s goal was $1 million in total net worth, then how he got there is irrelevant IMHO. Maybe he wanted to liquidate everything once he reached that goal. The crucial part is how he derived $1 million as his retirement goal. Your home can be a valuable investable asset. Many pull out HELOC for investments. The $$ discrepancies between the fixed asset (house) and liquid assets (investments) also seem irrelevant near retirement. If I need to feed myself, then I’m sure I’ll downgrade to a smaller home. Isn’t that what baby boomers are starting to do right now? Of course, you need to adjust your goal (total amount of net worth) if you want to retire in a 5000 sq ft home in West Vancouver. Why do people come to blogs like this? Isn’t increasing personal net worth the main objective?

Lakedweller: Manulife here in Canada does offer something similar. It’s called “Manulife One”. Seems legit to me and doesn’t cost $5000 :)

Definitely track this number.

Thanks for the great post!

I track our family’s expenses similar to how a business tracks theirs. Income statement, balance sheet, depreciation of assets, etc. This gives me assets, liabilities and net worth. Loan payments are split in to principle and interest portions (interest is expensed, principal comes off the liability). Asset valuation is done conservatively, especially for real estate (purchase price, though I will add an annual adjustment if prices have fluctuated significantly). My wife and I review expenses every month and compare to budget and highlight areas where we have variances. It’s never something to feel bad about, but as a team we are goal oriented and this allows us to identify areas where we are deviating from this goal. I find that it is very easy to allow the little things each month build up to become a big thing and not even realize you’ve spent $500 on extras. I believe a lot of families have this occur and without tracking it diligently, you will arrive at the end of the year and wonder why you fell so far off budget.

I’m just curious because my net worth has been going down lately, but due to other factors in my life I think my goal to retire at 45 is actually getting easier now than a year ago. So how married are you to that goal or is it just a rough goal?

Tim

The amount banks charge to break a mortgage (early renewal in most cases) can vary significantly. I assume you have checked with your bank to see what your fee would be. There are 2 equations used – one is 3 months interest, and the other is a more complicated one based on the interest rate differential (both formulaseasily available online).

In a lot of cases I’ve been reading lately, and also witnessed firsthand, the banks completely waive the break fee. This is often dependent on how persuasive you are, how hard you are able to lean on them, how good a negotiator you are. At one major Canadian bank in the last couple of weeks, I have 2 friends who in separate cases broke their mortgage and went 5.01 to 4.25 and 4.91 to 4.15, without paying a penny. I also early renewed this week, but was not able to get my bank to waver on the break fee. The fee was less than $2000, but I will still save over $1000 net over the next 3.5 years that would have been locked in at my old rate. Plus, my new 5-year term extends my protection from rising rates by another 1.5 years. So for me, it was worthwhile to pay the break fee, and early renew. It might not be the case for all – especially dependent on getting a favourable break fee, or waiver of the fee.

Back on topic: I also track our net worth monthly in Excel. Handy tool to observe the trend. I also track expenses/income to the penny every month (copy and paste from online statements), to see what the net cashflow for the month is. I also do a budget projection for the coming year late in the previous year, to get a sense for the cashflow by month. I spend quite a bit of time on this projection to make it as accurate as possible, and things always track pretty well. We don’t live within a budget per say, but we definitely as a team know the difference between needs and wants and use money accordingly. There are months where expenses might be projected to be just less than $3000, and we’ll make an extra effort that month to stay under that milestone.

Knowing were your money is going and how much is coming in is important but having money on the mind too often will take away what is truly important..living.

The only thing I’m currently trying NOT to track is how much my 5 year fixed rate mortgage at 4.95% is costing me versus if I’d taken the Prime – .8% I could have gotten in 2007 but I do consolate myself by knowing that however much it sickens me to pay this interest it would have been far worse if interest rates had kept going up (like they did for most of 2007). And to break out is to pay a massive fee that is more of a gamble than anything, better to take advantage of prepayment options.

Cheers!

While neither is perfect, you could look at comparable listings on MLS or maybe the value stated on your property taxes?

Poor immigrant parents teach a thing or two about being cheap.

Different metrics for different specific/defined goals (e.g. need $500k in income generating investments by retirement).

But I think what the networth statement does allow one to compare the relative importance of each line item.

Say goal #1 is to have my house paid in 12 yrs. – and that’s priority
Goal #2 is to have $200k more into RRSPs by that same date.

By monitoring the balances together, if the RRSP plan is ahead of schedule, I can divert money into paying off the home or vice versa.

I do feel like I get the sense of your original statement though. The bottom line networth number is simply a number to make you feel warm and fuzzy or depressed. But even in that I find value because as Kathryn mentioned, that feeling alone can be a great motivator.