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Personal Finance: Tracking Your Net Worth

Cnn Finance Calculator It's been said that the first step to improvement is measurement. This is certainly true of personal finances. Measuring net worth is the first step to increasing net worth.

My husband and I started tracking our net worth nearly five years ago. This simple spreadsheet exercise has aided us immensely in achieving our personal finance goals these past few years. By thinking about personal finance the same way a company builds its balance sheet, it is easy to see the big picture and achieve long-term finance goals.

Just like a company balance sheet, "net worth" is calculated as "assets" minus "liabilities". Our spreadsheet is constructed with a list of assets and debts in the first column and monthly dates across the top. Every month or two, I enter the value of each account in the corresponding column. Since my husband and I are rather geeky accountant types we also list subtotals for each of the following sections:

Assets
We start our spreadsheet by listing our assets. We start with "liquid" assets. These are assets that can be easily converted to cash. Our liquid assets include: checking and savings accounts, money market accounts, mutual funds, and individual stocks. Liquid assets could also include bond funds, bonds, Treasury bills, and savings bonds, to name just a few.

Next on the spreadsheet we list our "retirement" assets. These include our 401K and IRA accounts. We've been slow to roll over old employer 401K accounts, so we've accumulated quite a collection of accounts in this section. Eventually, we'll do the right thing and consolidate these, but in the meantime our monthly net worth exercise has forced us to keep track of the locations and amounts in these accounts.

Following retirement assets we list "college" assets. Our two-year-old son currently has two college savings accounts listed in this section. We track a pre-paid college tuition account and a custodial account for our son in this section.

After college assets we have a section for "fixed" assets. This section includes our house, cars, and furniture. Other common fixed assets might include boats, motorcycles, coins, vacation homes, etc. The values of the cars I usually update a couple of times a year by looking up the value on Kelly Blue Book's value calculator. This value depreciates over time based on the age, mileage, and condition of the vehicle. The value of the house I update once or twice a year with our best estimate of what the house would sell for. There are many real estate websites that can help with this valuation.

Liabilities
Now comes the "liabilities" portion of the balance sheet. Similar to a corporate balance sheet, we start with "short-term" liabilities. Our short-term liabilities include our two credit cards, our car loans, and my husband's graduate-school loan.

Fortunately, our credit card debt is now at a level that can be paid off each month and the car loans are now non-existent, but that was not always the case. It took strong fiscal discipline and our net worth exercise to reach this stage.

Finally, we list our home loan. This is a really easy number to track since the pay-off amount comes every month with the mortgage statement. That's it for the liabilities. Other examples of liabilities might include business loans, store lines-of-credit, and loans from other family members.

Subtracting the liabilities from the assets gives net worth. The beauty of this simple exercise is the big-picture perspective it gives to personal finance. With a little fiscal discipline, savings will increase and debt will decrease each month, giving a higher overall net worth value.

By Catherine Rein - Professional freelance writer with over ten years of experience working in strategic marketing, finance, and engineering roles.

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