Good Questions about Net Worth; How do You Track Yours?

Here's a piece from the El Paso Times titled "Financial Plan Requires Determining Net Worth." The beginning of the piece doesn't really add anything new for readers of this blog, but half way down the author asks some pretty good questions regarding net worth:

After you've arrived at your current net worth, ask the following questions:

1. Has your net worth increased since you last did this listing? If it hasn't, you need to determine the reason and perhaps make some changes in your spending, saving or other financial habits.

2. Does your net worth statement reflect a preference for personal assets such as an expensive home, cars, furs and jewelry? Your balance sheet should show a concern for acquiring investment assets, not just personal assets that are far less likely to increase in value or produce income that will help you meet other financial goals.

3. Is your debt out of proportion? If your personal balance sheet shows excessive debt, especially for personal consumption, that's a signal to review your spending patterns. Keeping debt under control is essential to good financial management.

4. Have you given enough thought to money needed for retirement? If your analysis shows neglect for accumulating money for retirement, you'll want to make some changes as soon as possible. Consider retaining the services of a financial consultant to help you project what your financial needs will be in retirement.

5. Are your assets diversified? Diversification is a good hedge against inflation and changes in the economy. Having all your eggs in one basket is seldom a good idea. Make sure you maintain an adequate emergency fund, but don't keep excess cash in no-interest or low-interest accounts unless you have an immediate need for the cash.

6. Where do you want to be three years, five years and 10 years from now, in terms of your net worth? Projecting your net worth on a short- and long-term basis will help you to make better financial decisions now and in the future. By keeping an eye on your end objective, you will more than likely be better disciplined in your financial decisions.

These are some very good questions.

I track my finances on Quicken. Every month I record my net worth, compare its growth/decline versus prior months and years, and review my liquid wealth (what I can access now if needed) versus my long-term wealth (mostly retirement funds). Doing this keeps me on top of most, if not all, of the issues raised above.

How do you review and track your net worth?

Comments

[Ryan Williams]

I use a combination of MS Money and NetworthIQ (http://www.networthiq.com).

I've found that keeping transactions constantly up to date across all accounts in personal finance software can be a challenge, and that was one of the motivations for developing NetworthIQ. By taking your balances at the end of the month, you can simply determine your net worth and monitor your progress. Even if you use software, NetworthIQ is a good complement, by allowing you to share and compare your net worth.

[ceo in training]

What type of Quicken do you use? I've seen plain for $30 and premier for higher.

[Gus]

I happen to use Quicken as well. I haved also used MS Money. It works fairly well to give me a good overview of net worth over time. I find it's got a lot more problems than I'd expected though. I definitely agree with the above poster in that it is a challenge to keep transactions up to date and accurate across accounts. Yesterday for example it insisted on treating a simple sale to close as a short sale, and it is not easy to correct these unexplainable errors when they pop up.

I'll have to check out that networthIQ...

[FMF]

I use Quicken Deluxe, but the basic version is fine for most needs. I upgraded to the higher end version a year or so ago when I got a deal on upgrading.

[Caitlin]

Same here, I used the Quicken basic version for years, then got a deal on the upgrade about a year or so ago. At the end of each month I post to NetworthIQ since I like the simple graph as a snapshot. ( I intend to backfill the first 6 months of the year but the trend is correct)