Your Net Worth: What It Is and What It Isn't


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WHAT I’M THINKING ABOUT: Your Net Worth and Your Self-Worth

Around here, we tend to talk more about cash flow — earning, saving, and spending — and less about net worth. Why? Because net worth is the sum of what’s happened in the past — how much you’ve previously accumulated — while cash flow drives where you’re headed right now. Are you saving more than you’re spending? Are you throwing money at high-interest debt payments? There’s only so much you can do right this second to increase your net worth, but there’s plenty you can do to improve saving and spending habits and start trending in the right direction.

That being said, net worth awareness is one of the building blocks of financial health. There’s quite a bit of fixation on net worth out there, so we’ll take some time to talk about what it is and what it isn’t, and then we’ll go over how to approach your own net worth.

Your net worth and your self-worth

For starters, do not confuse your net worth with your self-worth. I’ll say that again: how much money you have bears no relationship to your worth as a person. It’s nearly impossible today to fully believe that, to shut out the social messaging that money and its trappings are the measure of the good life. But it’s not true.

Money is a tool, not an end in and of itself. Far more important than how much money you have is how you use what you do have. Some of the most admirable people I know (not to mention in history) are people of modest means, or even downright poor. Money can do a lot of things, but it cannot be the ultimate thing. So if you’re down about your net worth and how it compares to others’, first remember where your worth truly comes from.

And then it’s time to take action.

Developing net worth awareness

The more awareness you exercise over your finances, the more control you’ll have over your money. If you don’t have a snapshot of your net worth — what we call a net worth statement — go ahead and put one together. Fortunately, it’s easy. You can find a template online, or just use this one.



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    First enter in the appropriate section of the Assets column what you own (like checking and savings, retirement accounts, brokerage accounts, real estate, your car, gold, and Bitcoin). The other side of the equation is what you owe to other people or institutions, and that goes in the Liabilities column (also called debt, which include things like student loans, credit card balances, your mortgage, and car loans). Then voila! Your assets minus your liabilities equals your net worth.

    Can you use an online tool like Mint or Personal Capital to track your net worth? Sure, but I still recommend using a spreadsheet. You’ll be able to customize your accounts the way you like and better track changes in net worth, and it also helps avoid impulsively logging in to Mint or Personal Capital to fret about short-term investment performance.

    Furthermore, your net worth spreadsheet also serves as a financial inventory. You can organize and keep track of account beneficiaries, key contacts, account numbers, passwords, location of statements, and other important information in a spreadsheet (password-protected, ideally). Having a clear and centralized place where you document key aspects of your financial life is incredibly helpful. This is particularly important for couples where one partner takes the lead in dealing with financial matters. If and when the time comes that the less involved partner needs to step in and manage the family finances, your proactive organizing will help keep chaos at bay.

    Net worth priorities

    Now that you have your net worth statement, what should you be on the lookout for? Here are the high priority items:

    • Priority #1: If your net worth statement shows high-interest debt, like credit card debt that doesn’t get paid off every month, you need to tackle that as priority number one. (Consider anything with an interest rate over 8% as high-interest debt.)

    • Priority #2: Do you have enough cash in a checking or savings account to cover 3 to 6 months of expenses and debt payments? This is your emergency savings, also known as your rainy day fund. This is the financial buffer that stands between you and credit card debt (and financial stress) when unfortunate and out-of-the-ordinary life events happen, like job loss or a major medical emergency. I recommend holding this cash in a separate savings account so it’s clear what this money is for and to ensure you don’t use it for other things like vacation.

    • Organization: Do you have accounts all over the place? Is your cash at three different banks? Your investment accounts at another three institutions? Is there a purpose to this, or can you consolidate, close old accounts, and simplify your financial life?

    • Purpose: Are each of your accounts serving a clear purpose? Your retirement accounts (like your 401k, 403b, IRA, or Roth IRA) are of course for retirement, but for other checking, savings, or investment accounts, what is your goal for that money? Is it for retirement, college savings, a down payment, emergency savings, travel, everyday spending, or something else? Each account should ideally have its own purpose or goal. Then add a note to your net worth spreadsheet about what that is for each account, and you’ll instantly be endowing your buckets of money with purpose.

    • Big Picture: Once you know what you have, where it’s at, and the purpose for the money, you can start to assess how you’re doing compared to your goals. Do you have far less saved for a down payment or college than you realized? That can be a hard fact to face, but it’s the starting place for making a plan and making progress.

    It’s very trendy these days to closely monitor your net worth to make sure you’ve amassed the proper amount for your age. (For example, Fidelity’s recommendation of two times your salary by 35 and three times your salary by 40 — better get moving!) Or even better: to watch, hope, and salivate for that magic moment when you have enough saved so your investment income covers your living expenses, financial independence is officially achieved, and you can retire early.

    Just be careful with this kind of focus on your net worth as it can quickly become an unhealthy obsession. More important than knowing how much you have at any given moment is knowing where all of your money is and what purpose each bucket is serving. In general, you don’t need to check the balance of your investments and update your net worth more than twice a year.

    Take it to the next level

    Once you’ve created your net worth statement, don’t stop there. Think about other key details in your financial life that would be helpful to have documented in one place. Keep a list of the following items on a separate tab of your spreadsheet.

    • Life and Long-term Disability Insurance: Document key policy details such as the amount of coverage, beneficiaries, agent contact information, policy anniversary date, and location of policy documents.

    • Estate Planning Documents: This includes wills, health care proxies, living wills, powers of attorney, and trust documents. If you have any of these items, list them out and include key details such as when they were signed and last reviewed, where originals are located, and key people appointed in each document (such as guardians for kids and who you name as your health care proxy).

    • Property & Casualty Disability Insurance: These are policies that protect your property or cover you for various liabilities, such as car insurance and renters or homeowners insurance. Make notes about agent contact information, policy number, billing (automated or not), and key coverage details like your deductible.

    What I’m Reading

    Your Professional Decline Is Coming (Much) Sooner Than You Think
    By Arthur C. Brooks, The Atlantic

    Don’t miss this must-read article about the data surrounding cognitive (and thus professional) decline and — more importantly — what we should do about it. Interestingly, the timing of professional peak and decline vary based on the field, with those requiring significant analytic capabilities seeing earlier declines. So what does the author (the former president of the American Enterprise Institute) propose to help us face the inevitable?

    Decline is inevitable, and it occurs earlier than almost any of us wants to believe. But misery is not inevitable. Accepting the natural cadence of our abilities sets up the possibility of transcendence, because it allows the shifting of attention to higher spiritual and life priorities.

    But such a shift demands more than mere platitudes. I embarked on my research with the goal of producing a tangible road map to guide me during the remaining years of my life. This has yielded four specific commitments.

    Go read the article for his helpful road map.

    You Accomplished Something Great. So Now What?
    By A.C. Shilton, The New York Times

    Relatedly, this article dives into the research behind the so-called arrival fallacy, the erroneous (but persistent) belief that once we finally achieve our goal we will be happy:

    The problem is that achievement doesn’t equal happiness — at least not over the long term. But this isn’t a message that most of us are familiar with. In fact, it’s almost antithetical to the American dream, which tells us that hard work and achievement deliver a happy life. And so we push our children to become captain of the travel soccer squad, a first-chair player in the orchestra and student body president, because we want them to be successful. We want them to be happy.And then, when they’re 34, fresh off a big achievement and so deeply unhappy that they find themselves sobbing in their truck in a Walmart parking lot (hello again, it’s me), they could end up feeling as though something is inherently broken within them.

    What do we do with this? Remember: just as your self-worth is not in your money, neither is it in your professional achievements.

    If you’re ready for financial guidance, accountability, and an action plan, check out our one-on-one services or online courses.