This post contains a free net worth tracking spreadsheet template for Microsoft Excel (.xlsx). Please enjoy it for your personal use. An explanation of net worth and why I use this spreadsheet follows the screenshot.
As you may know, I’m not a big fan of budgeting…at least the old fashioned way of manually writing down every penny you spend and rifling through receipts every month.
But that does not mean I don’t track my money!
For one, I use one rewards credit card for 95% of my purchases (including monthly bills when possible) so at the end of the month, I have a single record of my spending all ready for me…my credit card statement. I compare this to what I want to be spending (my budget) to see if I’m over or under.
But there’s one problem:
Monthly budgets aren’t that useful.
True, we pay a majority of recurring expenses like rent, debt payments, and utility bills once a month. But for me, a good chunk of the money I spend annually goes to things that I don’t pay for ever month like:
- Car and life insurance (2x a year)
- Auto and home repairs (whenever)
- Vacations (1-2x a year)
- Holiday gifts (1x a year)
For this reason, I find that monthly doesn’t account for this stuff. Because of that, I’m way over my budget some months and under some other months.
I believe that if you’re going to ensure that you’re regularly living below your means and building wealth, you need to track your net worth.
What is net worth?
Your net worth is a measure of your finances calculated by taking the sum or your assets and subtracting your liabilities (debts). So in a very simple example, if you have $10,000 in the bank and owe $2,000 on a credit card, you have a net worth of $8,000.
Your net worth can be negative. If you only have $1,000 in the bank and a $2,000 credit card balance, you would have a net worth of -$1,000.
Obviously, you want to build a positive net worth, although if you’re starting out in life with student debts and not a lot of savings, yours will probably be negative for a while. That’s OK. (Mine was until I was about 26).
Your net worth is less important than your net worth trend. It’s important to ask: Is my net worth going up or down this month? What about this year?
Obviously, you always want it to go up.
Tracking your net worth
Calculating your net worth is easy. You simply add up all of assets and all of your debts and subtract your debts from your assets. It’s important to remember, however, that your net worth changes all the time. Your net worth is like a snapshot of your finances at a given point in time.
To track your net worth, you compare a recent snapshot to an older one and see what’s changed.
For example, when you compare this month’s net worth to last month’s, these are some things that may be different:
- You’ve spent some money in your checking account.
- You’ve deposited $500 to savings.
- You’ve paid $200 in principal towards a credit card balance.
- Your 401(k) gained 2%.
All of the changes add up to either raise or lower your net worth. As you track it, you want to see that it’s going up almost every month. If your net worth slips for a month or two because of a big purchase that’s OK as long as it’s still going up over a longer period of time. What you don’t want is a net worth that doesn’t change or slowly goes down. That means you’re living above your means and headed for financial trouble.
What’s included in Net Worth?
Everybody has a different opinion of what assets to include when you calculate net worth. You’ll always include cash, bank accounts, and investments, and usually any real estate. Sometimes people will include cars and other big ticket belongings…personally I don’t because although you can sell your car for cash, making it an asset, cars depreciate over time and shouldn’t be considered part of your wealth.
As for debts, the rule I use is if you owe it, include it. This includes credit card balances even if you pay them in full every month, and it might include taxes you’ll owe at the end of the quarter or on April 15th.
Using the spreadsheet
It’s my hope that this spreadsheet is easy and self-explanatory. You can edit the row labels to match your accounts and add rows as needed. The formula cells are locked so you don’t accidentally break them. If you have comments or suggestions, please leave a comment!