Do you track your net worth?
The other day I received a letter from my bank asking me to give an update on my current financial situation. Since I have a mortgage with them, and a decent size one at that, they want to make sure my financial situation is well under control.
I can’t blame them for wanting to know, after all that is the business they are in, even though I found it a bit annoying.
In the end what they really wanted to know is my net worth, just incase I wouldn’t be able to make my payment for some odd reason and have the assets to back things up.
So I ran a few numbers and came up with this.
- Mortgage – $191,344
- Credit Cards – $3000
- Property Value – $245,500
- Cash – $5210
- Vehicles – $8,000
- Retirement $50,000
- Misc. Assets – $5,000
Total Assets: $313,710
Total Liabilities: $194,344
My Total Net Worth: $119,366
Why Your Net Worth Isn’t Worth $#!T
Those numbers look pretty impressive don’t they. However, I’m not showing these numbers to brag or prove something to someone, but rather to point out that your net worth is almost completely meaningless.
Yup that’s right, meaningless.
Now I’m not saying this to upset anyone. I know a few people who do track their net worth and that’s great but to me that number is nothing more than a vanity number.
Don’t get me wrong I like that I have such a great net worth but what does it really do for me. It looks great on paper but it doesn’t even come close to telling the whole story.
In fact if you read one of my recent articles I mentioned that I only came out ahead by a $245 in the month of May. Now you would think that with almost a $120,000 of assets I would be doing awesome but nothing could be further from the truth.
I”m still stuck in the paycheck to paycheck trap for the most part and just getting byand I don’t usually have much when it comes to the end of the month.
However when you look at my net worth it makes me look like my financial situation is doing just fine, when it really isn’t.
So in this article I thought would share a few metrics that I track and pay attention to.
3 Metrics You Should Pay Attention To
Income. The first metric I pay attention to is how much money I make in a given month. This will tell me if my income is going up, going down, or just staying the same.
To do this I base my current months budget on last month budget. This will typically give me the most accurate numbers as to how much I am earning and spending from one month to the next.
I usually manage all of this through my Mint.com account. To do this log into your Mint account and click on the Trends Tab. Then click on income over time in the left hand column and then select Last Months in the upper right hand corner. (Look at the picture below to help you out.)
What’s great about this page is that it will tell me what my average income over the entire month.
This might sound pretty basic but do you know how much make from month to month? Knowing this number allows you to allocate your spending to the correct categories.
Spending. The next metric I look at is spending and I do this by just clicking on Spending Over Time and then selecting Last Month under the Trends Tab. (Look at the picture below to help you out.)
From here you will see exactly how much money you spent over the month.
Again this is pretty basic stuff but do you know exactly how much you are spending every month?
Net Income. From here we need to look at the last and most important metric, our net income, or basicly the amount of money left at the end of the month.
This number is basicly subtracting your total income over your total spending and seeing exactly what we have at the end of the month. You can check this number out by going to Trends Tab again, clicking on Net Worth Over Time, and selecting Last Month. (Look at the picture below to help you out.)
In the picture below you will see a chart like I have below. The number I have circled below is how much I have left at the end of my May 2014 budget, $245.11
From here I like to track this specific number and see if it’s going up, down, or staying the same. What’s also great is that this number will let me know if my finances are improving.
The higher my net income is the more I can save, and the better off I will be. So what is your net income at the end of the month?
What Metrics Do You Track?
Wrapping up, I like tracking the three metrics I mentioned above because it is a direct reflection of how well I am doing with my finances.
More than that I’m not lying to myself with false vanity metrics and the last thing I want to do is fool myself into thinking my finances are doing really good when they are really not.
What metrics do you track when it comes to your finances? Share your thoughts and comments below.