Before you can really start your journey to Financial Independence, you need to know the lay of the land. If you don’t know where you are today, it’s impossible to plan a route to where you want to be tomorrow. Don’t hide from your financial reality, especially if you still have some debt. It will only lead to pain later down the track.

Calculating your net worth, and tracking how it (hopefully) improves over time really helps to keep focused and to stay on track.

The Net Worth Statement

The net worth statement is really easy to create and maintain. Its made up of the following elements:

1. Assets: list of all of your assets – this includes your emergency fund, general savings, retirement accounts, investment accounts, the value of any properties you own etc. but usually doesn’t include your car which depreciates too quickly – and total them up; and
2. Liabilities: list all of your liabilities – loans, overdrafts, student loans, credit cards, mortgages etc. – and total them up.

Its CRUCIAL that you are honest and don’t cheat! Be sure to list everything.

Your net worth is your assets, minus your liabilities, let’s call this your net worth number (NWN). Don’t worry if your NWN is currently a minus, single figures or many thousands. The crucial thing to know at this stage is just what it is. Without knowing your NWN, you have no idea if you are moving closer to your goals or further away from them.

Net Worth Tracking

Tracking your NWN is exciting and can become a bit of a daily obsession, especially when you are accumulating wealth and have money invested in the market in low cost index funds. However, one of the follies of the FI/RE movement is to ‘live inside a spreadsheet‘ and closely monitor the daily market changes – don’t do this!

Instead just set some time aside at the end of the month to calculate your new NWN for that month. Diarise when you are going to do it and then forget about it for the rest of the month. For some people, even a monthly calculation of NWN is too much hassle – though the MMG recommends a quarterly checkup at a minimum.

For the MMG, seeing and visualising progress is key. It helps to get through those months when you feel you are just treading water – just look back a year and see how well you’ve done! Then BOOM, things feel good again. Adding an extra line to the net worth statement to track the month on month increase helps with this mental process and is exactly what the MMG does. You can download a basic template for your net worth statement here.

Once you know your NWN and have begun to track it, the real fun begins!

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