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I was just reading an article on net worth on Boldin (previously New Retirement), and it got me wondering how often this is performed, and why, by my fellow HumbleDollar readers.
As for me, as I have written before, I calculate this number quarterly because we’re living off of our retirement assets until, most likely, we turn 70 in 3-4 years. If our retirement assets sink to an admittedly somewhat random level, we would claim my wife’s (the lower income’s) benefit to stretch our savings. I want to keep a keen eye on our financial status to make sure it is not slipping significantly.
I figure once we are receiving Social Security benefits, when I expect not to be withdrawing large amounts from savings, this activity will only occur annually.
I do two versions (because I am OCD about personal finance and I like spreadsheets, and it is oddly satisfying and amusing).
I do a super in-depth one annually. For this one, I include tangible assets like the estimated value of our home, vehicles, and belongings if they were to be sold quickly. If you are wondering why I track larger belongings (anything worth more than $100 usually…furniture, TVs, lawn mower and so on) once a year, it is basically to see if we picked up a lot of material stuff in the last year or sold off stuff (which I love doing). It’s more of a minimalism check than anything that requires much immediate action from me or my wife. I also check and track life insurance coverage, health coverage/premiums, and car insurance coverage/premiums once a year. Just to make sure we are covered in case of ill events. Lastly, I track line of credits (personal and HELOC). My wife works at a bank, so the personal personal LOC is free, and the HELOC is $50 a year. They are nice to have in case I find something expensive, I want to flip quickly or want to jump on a used car deal. The HELOC is to give us a month or two to move money around if we were to become unemployed and is only an extreme last resort (or one day, if we have a gap in funding to put a down payment on a home before we sell our current one).
Then, I do quarterly checks to see where I check our financial assets ( I just carry over values of tangible assets from the January numbers and delete any large items I sell or add any larger purchases I make). This tracks our retirement accounts, bank accounts, credit card accounts, mortgage, cash, HSA, any medical debt or misc small debts. I also track my kids (ages 5 and 7) Roth IRAs quarterly but do not include the amounts in my net worth.
What does this level of tracking do for me? Number 1 is giving me hope and a little peace. My wife and I are 40….retirement is, at best 10 years off, but more likely 14-18 years off. We are close enough to where it is no longer an abstract concept, but it’s far enough away that I can’t go telling off clients I don’t like working with lol. When I have a bad day at work, I plug in our financial networth (not counting home, vehicle and so on) and put in a modest 6% inflation adjust CAGR and dream of when exactly we can be more free.
Number 2: helps me identify options. How much money could we free up if we downsized our home and belongings? Somewhere between 49-55 we want to downsize our home and belongings. Kids will be old enough to identify some sentimental things and will make them hope chests and the rest we want to reduce while we have the energy and health to do it all ourselves.
Number 3: Helps me make plans for things/stuff in the event of my passing. I have a couple heart conditions that is top of mind always. Having a list of big stuff and all accounts helps me give my wife directions of what to do if I pass. She can ultimately make any decision she likes, but it lays options if she doesn’t want to think about what to do with so many things if I pass and gives her a ballpark value of things if she chooses to sell them.
Also, having my pulse on our insurance coverages and financials helps me update our “death file” every year (I really need a less morbid name for that). But basically, it lays out what to do with the insurance money and tangible stuff if were to pass or my wife. Much easier to open talk about that once a year and update the game plan together than the living spouse be completely overwhelmed if one of us unexpectedly goes.
Probably about twice a year (at least once at the end of the year).
“And why?” is a great question. Aside from being human, it’s just a progress report. I’m still in working years, pre-retirement, so it’s somewhat relevant for me.
I’d be lying if I said it wasn’t pride.
In my situation I learned over time how to manage my finances. A few years back I decided 2 metrics are essential, annual cashflow and net assets. The purpose of cashflow is to make sure income exceeds expenses. The purpose of net assets is to make sure I am making long term progress. In retirement checking net assets is to make sure I don’t run out of money. This enabled me to stop chasing income and return percent. Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect. I enjoy spreadsheets so I use them to manually calculate both net assets and annual cashflow. It’s good for my brain. I tend to calculate net assets when the market is up and not when the market is down except I also always calculate my net assets on December 31. I have records going back to 1999. If circumstances are good I spend more and if not, then I spend less.
“Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect.”
Ah, as Albert Einstein said, “Compound interest is the eighth wonder