Exploring net worth, different times, and financial status

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

Net worth:

What’s your net worth?

If I presented this question to you today, could you answer it accurately? Let’s start by defining what net worth means. Your net worth is the sum of every asset you own minus every debt you owe. It’s your liquidation factor. Sell everything you own today, pay back all your loans, and what’s left is yours — your net worth.

Net worth is an integral metric to track over time — it’s the pulse of your financial health.

If you work with a financial planner, this is one of the early quantitative areas they will explore as a foundational piece to the advice they provide.

Why? Net worth is a bit of an equalizer.

It facilitates a clear comparison of differential dollars and money management strategies. Someone that owns a million dollar home might have a $900,000 mortgage. Assuming they have no other assets or debt, their net worth is $100,000.

From the outside, a million dollar home is more impressive than a $200,000 home. But, if you own a $200,000 home and don’t have a mortgage (assuming no other assets or debt), your net worth is 2x higher than the owner of that million dollar home.

Externally this is hard to wrap our minds around; it’s why Morgan Housel voices the idea that wealth is what you don’t see. You can see the house, but not the net worth.

True wealth rests in the unspent dollars, but our minds assume that fancy homes and cars are better signals of net worth than they are.

Net worth allows you to see your current financial situation for what it is, and how well you are progressing toward your goals.

High incomes are quite impressive, but they don’t tell you much. If the income is not translating into assets that retain or increase in value, then you remain in a vulnerable, risky position.

So how do I track my net worth, and how often should I update this?

To track net worth, you need to hunt down values for all the big ticket assets you own: 401(k)/retirement accounts, health savings accounts, cash at the bank, home value, car value, jewelry, collectibles, etc.

Next, track down all of your debt: mortgage, student loans, auto loans, credit card debt, and any other miscellaneous loans. Debt is a financial obligation, with a balance you pay down over time — yes, even that item that you financed at a 0% interest rate.

After aggregating all these pieces, you need to find your total assets and your total debt. Your net worth is the chunk of your assets you freely own: assets - debt = net worth.

A few notes: make a footnote of the interest rates on your debt (and the time to payoff) at the bottom of your tracker, categorize your assets and debt (liabilities) by maturity (short-term to long-term), and don’t stress small value personal items.

Tracking net worth once per year is sufficient. If you like to see things on a more frequent basis — monthly tracking might be for you. Over time, you should see a higher margin of net worth as you increase your assets and decrease your liabilities. Don’t panic if your net worth is negative; this is a common position if you are early in your career and carry student loan debt.

As you build a log of your historical assets, debt, and net worth — you will be able to plot these points and see your progress over time. Warning — this is an addictive, yet empowering, process. The catch? You have to remain consistent over the months and years with your tracking.

p.s. If you would like my net worth Excel template, reply to this email to let me know you’ve shared it, and I will send it to you — for free.

_{Two quotes on different times:}

A dangerous phrase investors often utter is “this time is different.” This short-term, emotional, zoomed-in perspective can create chaos in your financial life.

_{Three questions on financial status:}

1. Am I buying this because I want it, or to signal something externally?

2. What items do I currently own that were status purchases?

3. How might I shift my financial benchmark to my past self, rather than external people?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]