In July 2017, I sat down to calculate our net worth for the very first time. I had just read The Millionaire Next Door by Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D., and after years of hearing the term in passing, I finally felt compelled to find out what ours was.
I had heard of a service called Personal Capital while listening to personal finance podcasts, so after doing a little research, I signed up for a free account. A few minutes later, our checking, savings and retirement accounts were connected, as well as the account we held with our mortgage loan provider, which was our one and only liability at the time. I also obtained the “Zestimate” of our home by connecting our address to Zillow. After logging on to Kelley Blue Book and calculating the value of our vehicles, there it was staring me in the face – our net worth of $194,481.
That number was calculated while we were in the midst of focusing all our energy on paying off our house. I continued to track it each month until we had nothing but assets, each month over the following seven months we took to celebrate our new freedom with a major spending spree before honing down on our next goal of saving $100,000 to purchase our first rental property in cash. And now that we’re 10 months and almost $40,000 into that goal, I’m putting together our 24th net worth report, closing out two full years of watching it rise and fall.
But before we get into the numbers, if you’re new to the term net worth and aren’t quite sure what exactly I’m talking about, I’m going to take a minute to explain it more.
Investopedia’s definition is this – “Net worth is the amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure of how much an entity is worth. A consistent increase in net worth indicates good financial health; conversely, net worth may be depleted by annual operating losses or a substantial decrease in asset values relative to liabilities.”
But to put it much more simply, your net worth is just the value of your assets minus your liabilities.
Assets may include your home, vehicles, investments, money in your bank accounts and cash. It can even include the value of your art, jewelry, furniture, etc., and as I was asked one time – yes, it can include the value of your guns! I don’t include any of those things when calculating ours, however, because I just don’t want to take the time to add up the value of each little thing we own.
As for a liability, it’s the amount of debt you owe on these things. My husband and I have not had a liability since paying off our house in January 2018, but when we did have a mortgage, the amount we owed from month to month was subtracted from the current value of our assets when calculating our net worth.
Some calculate their net worth manually using a spreadsheet, but I have never calculated our net worth any other way than using Personal Capital. I mentioned this service a few minutes ago, but I’ll tell you more about it below.
This is the only financial tool I use that I haven’t come up with myself. The service is so quick and easy to use that I’ve just never felt compelled to put a spreadsheet together to calculate it. Plus it’s free!
Personal Capital is an app/service that updates your net worth upon sign-in by connecting to your bank accounts, investment accounts and even Zillow, though I found that our “Zestimate,” their estimated value of our home, fluctuated wildly almost month-to-month. Connecting your accounts is optional, so this is not something you have to do if you don’t feel comfortable with it.
It is good to keep in mind that some companies do not allow third parties to have this sort of access to their information, and because of this, I have to log into my husband’s retirement account and manually update the value on Personal Capital. Also, to get a good idea of the value of your vehicles, I recommend checking kbb.com and manually updating those amounts when you log into Personal Capital.
They are now offering a refer-a-friend program for their free service, so it’s a great time to try it out. If you use this link and connect a qualifying investment account (taxable brokerage, 401k, IRA, 529, etc.) with a balance of over $1000 within 30 days of signing up, you and I both will receive a $20 Amazon gift card! It’s a win-win-win!
Now that you know how to calculate your net worth and how I choose to calculate ours, let’s check out our numbers for June.
- Cash: $49,294
- Investments: $86,951
- House: $150,000
- Vehicles: $10,365
Net Worth: $296,610 (+$4,342 from last month)
This number is $102,129 higher than that first number I calculated back in July 2017, meaning that even though we spent those seven months celebrating with no intention at all of improving our net worth, it still went up by over $100,000 in two years! I’m looking forward to seeing how much it continues to increase over the next two years and beyond.
If you haven’t calculated your net worth yet, open a new Google Sheet and start calculating your assets and liabilities or just open a free Personal Capital account and let it walk you through the process. Don’t be afraid of seeing a negative! There are plenty out there with a negative net worth who are working toward $0, and when that day comes, you’ll be so glad that you tracked it. I wish I had started tracking mine several years ago!
Just let me know in the comments if you have any questions about our net worth or need help calculating yours for the first time.
Thanks as always for reading!