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How Often Should You Monitor Your Net Worth?

The Joy of Tracking Your Net Worth

Do you ever wonder how often you should keep tabs on your net worth? Well, Harley, let me tell you, it’s a topic we love discussing here. It’s like Christmas morning for us financial enthusiasts. We eagerly anticipate it, chatting about it in the weeks leading up to the big day. January 1st rolls around, and we start pulling out statements and examining the numbers. The thrill of it all!

Speaking for myself, I’m all about surprises. When it’s my birthday or Christmas, and I spot something hidden away in the closet or perched high up where my wife thinks I won’t find it, I purposefully turn my head. I absolutely hate ruining surprises. And that’s exactly how I treat my net worth statement. I prefer to do it once a year, at the end of the year. Throughout the rest of the year, I focus on the process—am I saving more? Am I making progress on my debts? Am I taking steps that will impact my net worth? Then, at year-end, I revel in the big “aha” moment, seeing the true net effect of all my financial decisions. It’s a nice, clean break, and it keeps the excitement alive.

Now, Brian might have a different viewpoint, so I’ll let him share his thoughts. But before that, let me touch on a key resource for you, Harley. Visit learn.moneyguy.com. We have a fantastic Net Worth Tool that offers a great template and other valuable guidance for setting net worth goals.

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How Often Should You Update Your Net Worth?

Think of your net worth statement like raising a child. In the beginning, when they’re babies, every milestone is cause for celebration. You eagerly await those first rolls, first steps, and first smiles. Your baby is rapidly hitting new milestones, just as you are when you first start tracking your net worth. At this point, you may feel inclined to update your statement monthly or quarterly because you want to revel in those exciting achievements. Maybe you paid off a credit card or hit your target of saving 20 to 25 percent of your income. It’s only natural to want those successes on paper or in your spreadsheet. Celebrating wins feels great.

But, just like with children, as they grow older, their accomplishments become less frequent. The time between those milestones lengthens. It’s the same for your net worth updates. Monthly or quarterly updates may not provide the same joy and incremental value they did in the beginning. You want those moments of celebration to remain special. That’s why Beau suggests doing annual updates. He craves surprise and wants to see how his career and financial goals have matured. If monthly updates start to dampen your joy or add no real value, it’s time to scale back. Pay attention to what truly brings you fulfillment.

Key Aspects to Consider

Now, let’s dive into what you should focus on when reviewing your net worth statement. One metric I find valuable is tracking the annual change in net worth compared to the previous year’s income. This gives me an idea of how close I am to financial independence. If my net worth is growing faster than my income, it means my money is working hard for me. Another essential element is monitoring my debt payoff progress. As I near the finish line of paying off my house, this becomes especially important. Lastly, I keep a close eye on my liquid net worth, which includes cash reserves, brokerage accounts, and retirement funds. I exclude my primary residence and real estate from this calculation, as they are less liquid. It’s fascinating to observe how these components evolve over time.

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Setting Net Worth Goals

When it comes to setting net worth goals, I’ve shifted from focusing solely on yearly targets. Instead, I now have five-year, ten-year, fifteen-year, and twenty-year goals. These long-term goals align with my aspirations and the areas where I want to see progress. The exact stage or age of my liquid net worth isn’t crucial; it’s about achieving growth over a specific time period. When I assess my annual net worth statement, I prioritize moving closer to those long-term objectives rather than obsessing over year-to-year changes. While temporary declines may occur due to market fluctuations and other factors, my primary focus remains on the overall savings and progress reflected in my net worth statement.

I must admit, Harley, I have quite ambitious five-year and ten-year net worth goals. For example, I aimed to reach $100,000 by the age of thirty and accumulate a million dollars in liquid assets by forty (excluding real estate). Additionally, I’ve set the target of paying off my house by fifty, despite having a pretty low interest rate. However, writing that final check proves challenging because the difference between the cash’s interest and the mortgage rate is around 1.5% to 2%. It’s possible that I may need a little more time to accomplish this particular goal.

Maintaining Humility and Motivation

While it’s crucial to set goals, it’s equally vital to avoid falling into a false sense of security. Real estate values have been on the rise in recent years, tempting us to believe we’ve achieved a certain net worth status. But let’s stay honest with ourselves. I look at it this way: I’m like an elite athlete who deliberately fabricates challenges to maintain humility and motivation. For instance, I factor in deferred taxes on my retirement accounts and businesses. This ensures my net worth doesn’t become misleadingly inflated. If these assets were converted into cash, they wouldn’t retain their full value due to those deferred taxes. By considering these aspects, I stay grounded, stay motivated, and continue building my net worth, regardless of my current standing.

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So, Harley, find the frequency that brings you joy, and always keep an eye on the bigger picture. Happy tracking!

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