All year long, we have been taking a closer, more thoughtful look at the various financial touchstones a military family might encounter as they live the year. From planning for kids’ college expenses, vacation planning, and managing money before and after each PCS, each practice has its place.
This month, we will look at net worth tracking. Let’s take a closer look at defining the concept, seeing evidence for its importance, and understanding suggestions on how to get started.
What is net worth tracking?
Simply put, net worth tracking is adding up your assets and subtracting your liabilities or debts. The number that remains is your net worth.
For example, you would add up the value of your home, any cash in bank accounts, and the value of investments (like stocks, bonds, or index funds). This number represents your total household assets. However, you would then subtract your mortgage debt, any loans — including credit card and student loan debt;finally, deduct that sum from your assets, and the line item total is your net worth.
For many, this exercise can be eye-opening, if not disheartening. However frustrating or dire the amount representing your net worth may be, consider it as a starting point.
If the amount is a negative number, meaning your liabilities are greater than your assets, tracking your net worth might be a positive step toward seriously addressing debt repayment or spending habits.
If the amount is a positive number, or “in the black,” it’s still a good opportunity to reexamine overall spending, your investing strategies, and other long-term paths to increasing your overall net worth.
Why is net worth tracking so important?
Just like logging into your checking account to check your balance or making and keeping a monthly budget, tracking your net worth is another means of taking the temperature of your personal finances. If each daily or monthly spending check-in is like a trip to urgent care, think of your net worth tracking as anannual physical for your finances.
One addresses the immediate and the other is preventative and provides an opportunity to address issues related to your vitality and longevity. Both are important and neither should be overlooked — whether it comes to managing your health or your finances.
For many military families, our lifestyle can often seem like one trip to financial urgent care after another. With constant relocations and pattern-of-life changes we tend to go from one monetary mini-crisis to the next. Consider irregular income with spouse unemployment issues, upfront out-of-pocket moving expenses, or the wildly variable costs of housing, depending on where you live. It can feel overwhelming to make forward progress with your money goals when so many of your life expense and income circumstances are largely at the mercy of Uncle Sam’s whims.
Without periodically stopping to make sure our long-term financial plans are lining up according to our most important goals and values, we may find ourselves nearing the end of our military careers without the means to enjoy the season of life beyond service.
When you make it a priority to track your net worth, you will take back control over both the long-term impact of your finances as well as the small, daily decisions that will enable those plans to come to fruition.
How do I get started tracking my net worth?
Your net worth is your total wealth when you take into account your total assets minus your total liabilities; what you own minus what you owe.
There are simple ways to get started. You can make a written list or an online spreadsheet to show your total values of what you own — like a home, cars, jewelry, land, or cash values of savings, checking, and brokerage accounts. From that, subtract total amounts owed on any of these assets as well as any other debts like medical debt, credit card, student loan, or car debt as well as your total mortgage debt.
One thing to keep in mind is that net worth tracking isn’t a one-and-done activity. Your net worth is a fluid number that changes constantly as you acquire new debt, pay down existing debt, and as you watch home values and investment assets rise and fall depending on many economic factors out of your control.
Once you have a basic list of accounts and balances, there are many online systems into which you may input your numbers and then keep track of your real-time net worth, logging in to check it as frequently as you’d like. Many of these apps and sites allow you to view snapshots comparing your current net worth to that of last month, last quarter, or last year. It’s nice to have all this data in one place rather than constantly logging into a variety of platforms to track progress.
Some of the more popular net worth tracking sites include Personal Capital and YNAB (You Need a Budget). These apps and others do require you to connect very sensitive personal information like social security numbers and account numbers to their sites. Your personal bank may offer this through its online banking portal as well.
Once you are up and running with tracking your net worth, you will be able to see a clearer picture of where you stand financially. The picture may be lovely, or it may feel like one of those accidental selfies you take that shows your neck, face, and chin at a very unflattering angle.
Keep in mind, this is just a picture and you have the power to change what the picture looks like over time. The higher the positive number of your net worth, the closer you may be to attaining a comfortable retirement. However, if your net worth is negative or low, this is your chance to get your financial house in order. Pay off debt. Stop impulsive spending. Lower your living expenses. Live within your means.
According to Investor Junkie, the top four tips for increasing your net worth include: creating a game plan, sticking to your budget, investing diligently, and creating new income streams. However, if your situation feels too complex or daunting to get started alone, take advantage of AAFMAA’s Military Financial Planning Services by connecting with a Relationship Manager.
Improving your financial situation won’t happen overnight. Net worth tracking is one valuable way to start your journey toward improvement. By taking an honest look at where you are and by following a strong plan to get you where you want, you will be able to successfully achieve your money goals for the future.