Monitoring your progress
How is it going after a month? A year? Three years?
“If anything is certain, it is that change is certain. The world we are planning for today will not exist in this form tomorrow.” — Philip Crosby
Tracking Net Worth
Remember the personal balance sheet we used to establish our baseline? If you haven’t started yet, that should be your first step in taking control of your finances. Add another column for each month, and track the balance of all of your assets and liabilities.
Your net worth is simply total assets – total liabilities, and while it doesn’t tell you everything you need to know about the state of your financial health, is a good starting point. The plan you developed in responding to question 3, “how will I get there?”, was focused on increasing income and assets, and reducing expenditures and liabilities. The change in your net worth is a measure of whether, overall, you’re doing more of the good stuff than the bad. You want to see your net worth rise every month.
You don’t need to check the value of your fixed assets (house, car etc.) and long-term investments (401k, IRAs, etc.) every month — you can if you want, but checking up on those once a year will be more than often enough. There are certainly perils of looking at retirement savings balances too often: short term fluctuations in the markets will start to seem important and may influence you when they should not.
Your checking accounts, savings, credit card and loan balances should always be up-to-date on your monthly personal balance sheet. If you can’t recite your current balances on these accounts to within +/- $250, you probably aren’t paying them enough attention.
Now, think back to question two, and remind yourself why you’re even doing this. Why you’re spending a couple of hours a month messing about with a spreadsheet and calculating your “net worth”. Your ‘worth’ is measured in more than dollars and cents right? Of course it is. Meeting your goals is the very definition of success. So; look at the your short-, medium-, and long-term goals you set for yourself when you asked yourself question two — “where am I going?”. Have you got there yet? Are you going in the right direction?
Say, for instance, you’ve met goal #1 (paying off your $2500 credit card balance, a short-term goal which was your first priority because of the high interest rate you were paying on the debt). Those $250 credit card payments were eating into every paycheck, but you’d got into so used to living without the money that now you’ve paid off the debt, you feel $250 richer every month. What to do? Celebrate your success (I recommend beer and cake), go back to question two, and set your next goal! It might be repaying your next highest-interest debt, or once those are gone, it might be opening a Roth IRA and starting putting money aside for your retirement.