Harley wants to know, how often do you recommend tracking your net worth? Currently, I track annually every January. Also, how do you recommend setting net worth goals each year? I know you both love doing your net worth statement, so I’m sure you have a lot of advice for Harley. Yeah, no, doing a net worth statement every year. We say this every year on the show. It’s like Christmas morning. We get so excited about it. We start talking about it a few weeks leading up. Normally, on like January 1st, we’re texting each other about pulling statements or whatever because it’s so, so exciting. I’m going to speak for me personally. I want to hear from you, Brian. I love being surprised. I just love being surprised. So whenever it’s like my birthday or Christmas around the house, and I see something sticking out of the closet or I see something up high that my wife is trying to hide from me, I purposefully avoid it because I hate ruining surprises. I like the idea of being surprised.
I treat my net worth statement the exact same way. I like doing it once a year at the end of the year. All the rest of the year, I want to focus on the process, process, process, process. And my saving is my savings increasing? Am I putting money in? Am I doing the things? Am I paying off the debt? Am I doing all the stuff that will affect my net worth statement? So that then, at the end of the year, I get the big “aha” of the true net effect. Okay, of all the decisions I made, all the financial things that I did for the year, that will affect my net worth. What’s that look like? So, I personally track mine annually, and I do it at the end of the year, just because it’s a nice, you know, clean little break. Agree, disagree, different view? Well, I have a… I think it depends. Let me give you the facets to this.
First of all, if you need a… because you’re hearing about net worth and you want to know how do I do this right, I want you to go to learn.moneyguy.com. We actually have a Net Worth Tool that has a great template and other things that will actually help you with the second part of this answer. The same one that we use. Yeah, I use this for myself. Bogus is this. We actually… we eat our own cooking. So, you… this is… you’ll be using the same net worth that we use. Look at your net worth statement kind of like the way you… how often you should update it, to the way you raise children. In the beginning, with babies, they do lots of exciting stuff, so you want to be around when they roll over for the first time. You want to be around when they first pull up and smile or the first time they start walking. So, that stuff’s happening very quickly. And when you first start tracking your net worth, you’re gonna probably feel a tendency that you want to update this thing every month, every quarter. And that makes complete sense, because you’ve got crazy good stuff that’s going on that you want to celebrate. Like, maybe you paid off a credit card or you want to… you know, you now finally have reached saving 20 to 25 percent of your gross income, and you want to see that on paper or on your spreadsheet of what success you’ve had. You want to celebrate those successes. But just like with your children as they get older, those accomplishments start to stretch out a little bit. The time between them gets longer, so you won’t have moments of celebration as frequently. That’s why I think when Beau talks about annual updates, it’s because he wants to be surprised. He wants to see the progress because his career and financial goals have matured to the point where monthly or quarterly updates don’t provide the same incremental value they did in the beginning. It’s important to celebrate those good habits frequently, but if updating your net worth monthly is causing you to lose joy and value in the activity, then don’t do it as often. Pay attention to that.
Now, let’s talk about what you should be looking at. One thing I like to examine is my annual change in net worth compared to the previous year’s income. This allows me to gauge how close I am to financial independence. If my net worth is increasing more than my income, it means my money is doing more of the heavy lifting. Tracking the progress of debt being paid off is also important to me, especially since I’m nearing the point where my house will be completely paid off. Additionally, I enjoy monitoring my liquid net worth. This includes cash reserves, brokerage accounts, and retirement accounts, excluding my primary residence and real estate, which is less liquid. It’s fascinating to see how these things change over time.
Moving on to setting net worth goals, I have shifted from setting annual goals to focusing on five-year, ten-year, fifteen-year, and twenty-year goals. I want to see progress in those areas you mentioned, where I don’t want my liquid net worth to be at a certain stage, age, or over a specific time period. When I review my annual net worth statement, I’m more concerned about whether I’m moving closer to those long-term goals rather than obsessing over year-to-year changes. I understand that market fluctuations and other factors can cause temporary declines, but I’m primarily focused on the savings and progress reflected in my net worth statement.
I do have some lofty five-year and ten-year net worth goals. For instance, I wanted to reach $100,000 by the age of thirty and have a million dollars in liquid assets by forty (excluding real estate). Now, I have additional goals, such as paying off my house by the time I’m fifty, even though my interest rate is quite low. However, I find it challenging to write that last check because the spread between the interest I’m earning on my cash and the mortgage rate is around 1.5% to 2%. It’s possible that I might go beyond fifty to accomplish this goal.
It’s crucial to set goals, but I also want to emphasize the importance of not falling into a false sense of security. Real estate values have been soaring in the past two years, and it’s easy to play out scenarios that make it seem like you’ve achieved a certain net worth status. Be honest with yourself. I consider myself like an elite athlete who creates obstacles to keep myself grounded and motivated. For example, I account for deferred taxes on all my retirement accounts and businesses to avoid having a misleadingly high net worth. If you were to convert these assets into cash, they wouldn’t be worth as much due to the deferred taxes. So, include these considerations to stay humble, motivated, and continue on your journey of building net worth, regardless of where you currently stand.
For more information, check out our free resources here.