net worth tracking: what to count, what to exclude, and how to use it

In short

I once watched a neighbor of mine keep every receipt in a shoebox for a whole year, and he could not tell you if he was better off at the end of it. A shoebox shows what you spent. A net worth number shows where you stand. If you are holding a pile of statements and wondering what they add up to, this page is for you. Net worth is what you own minus what you owe. Pick a few dates each year, and write down the same list each time. Count things you could sell for cash, and count every debt. Leave out things that only feel valuable, like a favorite quilt. Then watch the direction of the number, not the number itself.

The whole of it

What it is

A friend of mine, a retired schoolteacher named Ruth, told me she never felt rich or poor until she wrote one number down on a Sunday afternoon. That number was her net worth, and it surprised her in a good way. Net worth is the value of everything you own, minus everything you owe. Owned things are called assets. Owed things are called liabilities. The gap between them is your net worth.

It can be a negative number, and that is no shame. A young person with student loans and a small checking account will often start below zero. A friend of mine started there and laughed about it later. The number is a starting line, not a grade on your character. You are worth far more than any figure on a page.

How it works

If you have ever balanced a checkbook, you already know the habit. Make two lists on a quiet afternoon. On the first, write down your assets, each with an honest current value. On the second, write down your debts, each with the balance owed today. Add up each list. Subtract the second from the first. That is the whole trick.

What belongs on the asset list? Cash in checking and savings. Money in a 401(k), an IRA, or a brokerage account. The market value of your home, which is what a buyer would likely pay. The value of a car, using a price guide. Any business you own, at a fair sale price. These are things you could turn into money if you had to.

What belongs on the debt list? Your mortgage balance. Car loans. Student loans. Credit card balances. Any personal loan, medical bill on a payment plan, or money owed to a relative. Write down what is owed today, not the original loan amount.

Now for the hard part, which is deciding what to leave out. Household goods, clothing, and furniture usually go uncounted, because a used couch sells for a few dollars. Your wedding ring, your grandfather's pocket watch, and a quilt your mother made are priceless to you and cannot be sold without losing what they mean. Leave them off. Counting them only inflates the number and fools you. Future paychecks are left out too. Your earning power is real, but it is not money you hold yet.

Retirement accounts deserve a word of care. A traditional 401(k) or IRA is money you have not paid income tax on yet. Many people count the full balance anyway, since it keeps the habit simple. A few prefer to shave off a rough tax amount. Either choice is fine if it stays the same each time. Pick one way and stick with it.

The numbers, and where to find yours

Most of the figures you need are already in your mailbox or your online accounts. Bank balances come from your monthly statements. Retirement and brokerage values come from the latest statement or the login page of the account. Loan balances appear on the statement from each lender, often labeled as the payoff amount or principal balance.

Your home is the trickiest one. A rough guide is a recent sale of a similar house nearby. Some people use an online estimate, and others ask a licensed appraiser. None of these is exact, so treat the figure as a fair guess and move on. For a car, a published used car price guide gives a reasonable range.

If you want to see how your household compares with others, the Federal Reserve publishes the Survey of Consumer Finances, which reports household net worth across the country. Read it for context only. Your neighbor's number tells you little about what is right for your family. The best comparison is you today against you a year ago.

A worked example

Let me tell you about a woman I will call Marisol. She is thirty four, works as a dental hygienist, and earns $52,000 a year. On a Saturday morning, she sat at her kitchen table with coffee and her statements.

She wrote down her assets first. Checking held $2,400. Her savings account held $6,100. Her 401(k) held $18,500. Her car, by a price guide, was worth $9,000. Her condo, by a recent nearby sale, was worth $210,000. Adding these, $2,400 plus $6,100 is $8,500. Then $8,500 plus $18,500 is $27,000. Then $27,000 plus $9,000 is $36,000. Then $36,000 plus $210,000 is $246,000. Her assets came to $246,000.

Next she wrote down her debts. Her mortgage balance was $168,000. Her car loan was $5,200. Her student loan was $9,300. One credit card carried $1,500. Adding these, $168,000 plus $5,200 is $173,200. Then $173,200 plus $9,300 is $182,500. Then $182,500 plus $1,500 is $184,000. Her debts came to $184,000.

She subtracted. $246,000 minus $184,000 is $62,000. Her net worth was $62,000.

She did not count her furniture, her clothes, or the painting her grandmother left her. She wrote the date and the number in a small notebook. Six months later, she did it again. Her mortgage had dropped to $166,000, the credit card was paid off, and her 401(k) had grown to $21,000. Her new figure was higher, and she felt it in her shoulders. Seeing progress on paper is a quiet kind of encouragement.

Where it goes wrong

I have made most of these mistakes myself, so I say this as a fellow traveler. The first is counting what you cannot sell. A sentimental heirloom or a roomful of furniture puffs up the number and makes a false picture. Keep the list honest.

The second is forgetting a debt. A small balance on a store card or a loan from your brother is easy to overlook. Skip one, and your number looks better than it is. Check every statement.

The third is guessing too high on a home. A hopeful price is not a sold price. If you are unsure, use the lower end of a fair range. Better a pleasant surprise than a sour one.

The fourth is changing the method each time. If you count the full 401(k) balance one year and a reduced figure the next, the change in your number means nothing. Keep the recipe the same.

The fifth is checking too often. Markets move daily, and watching them can make a calm person jumpy. Twice a year, or once, is plenty. And the last one is judging yourself by the number. A low figure does not measure your worth as a person, and a high figure does not either. It is a tool, and nothing more.

Questions to answer before you leave this page

Have you picked a date, maybe the first Saturday of January and July, to sit down and do this? Have you gathered your latest statements for every bank, retirement, and loan account you hold? Did you decide whether a traditional 401(k) or IRA gets counted at its full balance or at a lower amount after tax, and will you stay with that choice each time? Are there debts tucked away, such as a medical payment plan or a loan from a family member, that belong on the list? Have you set aside the heirlooms and household goods so they do not sneak into your assets? Where will you write the number down so you can find it next time? And when you see it, will you remember that you are looking at a direction of travel, not a verdict on who you are?