Wednesday, April 13, 2011

Calculating Net Worth

I was checking out several financial blog sites yesterday and came across a few whose entire focus is related to keeping track of and increasing net worth.  It got me thinking that it's been quite a while since I've calculated our net worth and when I did, it was only a very rough estimate and I think it was negative or real close to it at the time.  Since we've recently become debt-free, minus the house, I figured it would be much easier to calculate now, so why not start keeping track of that on a go forward basis and set some goals to make sure things are heading in the right direction. 

There are a few different philosophies out there as to what you record.  I am including the value of our vehicles and our home, but no other assets inside the home such as a flat screen TV, computers, wife's engagement ring, etc.  As far as vehicles go I'm using the Kelly Blue Book Third Party value listed in the 'Fair' category rounded to the nearest thousand.  As far as home value goes I'm using the Zestimate value and subtracting 10,000 since I think that more closely reflects the potential value.  Neither of those sites provide an exact value, since you will only know the true value when you go to try and sell your house or vehicle, but calculating them in that way will provide a conservative baseline value to start from. 

I searched for and tried a bunch of different free spreadsheets.  The one that I found most useful was this one here.  It's very simple, you put your assets such as your bank accounts, 401k accounts, Roth IRAs, etc. in the Asset sheet, your liabilities such as your mortgage, credit card bills, student loans, car loans, etc. into the Liability sheet and then it calculates your net worth on the Net Worth sheet and shows an increase or decrease and a % increase/decrease from month to month.  In addition there is a graph showing you in chart form how you're doing, with the goal being an upward slope over time.

The only oddity is that in on the Net Worth sheet the % increase or decrease shows up as an error, but I think that is because I'm starting with April and there are no numbers for Jan/Feb/March.  But it does create Net Worth just fine and plots it out for you nicely.  So it provides a good template from which to start from.  You can just as easily create your own with the help of the first link below.  I plan to mess with the formulas on the one I mentioned so that they no longer will show errors and I imported mine into Google Docs so that I can share the document with my wife and we can both see at any time where we're at on a monthly basis.  

No matter what tool you use to calculate your net worth, the main goal is to see where you're at now and put together a plan to make that number go up over time.  Whether you use a spreadsheet, website or pen and paper is irrelevant, just pick a particular method that suits your needs, calculate it out and check it at regular intervals over time so that you will know if you're on the right track or need to make some adjustments.  I think it will make a great addition to my financial toolbag and hope you find it useful as well!

The Simple Dollar - Building Your Own Monthly Net Worth Calculator Using A Spreadsheet

2 Million Blog - Blogger with sole goal of achieving a net worth of 2 Million and he shows you ever month exactly where he's at on that goal

NetworthIQ - Online site where you can anonymously share your net worth and track it online over time.  You can also compare yours to others in your age group, gender, etc. 

Let me know how it works for you and if you have any questions at all, just ask in the comment below.  I'd be glad to assist!


Jen said...

Since I've only been in the workforce 6 years or so my retirement stuff isn't beefed up yet so our networth really won't be big until we pay off the house. We do have some though so that's the point people, pay off your debts (including student loans, car loans, etc..).

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