Tracking Net Worth and Compound Interest Calculating

[scrabbler1]

I began working in 1985. For the next 10 years, until I bought my first PC in 1995, my NW record-keeping was on pencil and paper along with the quarterly 401k statements.

When I bought that first PC, everything changed. After creating more elaborate spreadsheets to replace the taxable worksheets on pencil and paper (which I still do as a back-up), and creating a similarly more elaborate spreadsheet for the 401k, I was now more able to monitor my NW (investments only). Still, the spreadsheets were separate from each other because taxable was updated every month (mid-month, when my bank statement came out, as well as on 12/31) while the 401k was still updated every quarter.

But the spreadsheets allowed me to calculate things I couldn't do with pencil and paper, such as approximate monthly rate of returns, for both taxable and the 401k.

I also put each mutual fund into a spreadsheet so I could monitor them as well as more easily determine a cost basis whenever I sold any shares.

When my company introduced its company stock program (ESOP), I created a spreadsheet for that, eventually combining it with my 401k spreadsheet when the company merged the 2 into its single quarterly statement.

I put my checkbook register into a spreadsheet and expanded it to better keep track of my expenses; I built a very useful skeleton version of my income tax returns to see if my withholding was right as well as watch for possible estimated tax payments via "what-if" scenarios.

As my ER plans began to unfold, I created another key spreadsheet to estimate my expenses and income from my projected ER age of 45 through age 65, the important part of my ER before my "reinforcements" arrive - unfettered access to my IRA, frozen company pension, and SS. This spreadsheet also has an estimated cash flow I create each year, like an estimated checkbook register, so I know when I have surpluses I can invest elsewhere. Another useful spreadsheet was an enhanced expense summary spreadsheet which combined the pencil-and-paper summaries I did every year.

After I ERed, I created a spreadsheet for my rollover IRA which (finally) combined my IRA and taxable accounts. I included the data points prior to 2008 on a quarterly basis.

[TheWizard]

I don't track my net worth, hardly ever did.
Eight years into retirement, I do monitor my 403(b) plan, my Roth IRA, and my taxable account every week or so to make sure nothing strange is going on, and to keep an eye on limit order status in the latter two accounts.

And toward the end of each year, I do a projection an income projection for the year, including dividends in my taxable account. This lets me figure my Roth conversion amount for the year, to keep my AGI from getting into the next higher IRMAA tier.

And I typically update my income projection spreadsheet each January with updated SS and annuity monthly income numbers, as well as updated 403(b) balance, which affects my eventual RMDs.

Note: "compound interest" is a non factor in most serious investment performance, either before or after the start of retirement.
And I don't try to project what my combined portfolio balance might be a year from now, etc. It will likely be larger most years and that's fine...

[Midpack]

I’ve tracked our net worth quarterly since 1994, just posted the corresponding graph in another thread. The magic of investing, compounding and staying the course…

[rk911]

Quote:

Originally Posted by Blue531 I've been tracking my net worth on a monthly basis since 1999--the first year in which it first went positive. I had been investing in my company 401k for a year and saving money aside from it, too. I have found tracking NW to be a simple yet effective exercise that kept me motivated and on the steady path to financial freedom. I would suggest to anyone starting out to begin logging theirs. It is very empowering to see one's wealth increase little by little over time, assuming, of course a person is working toward decreasing spending and increasing investments or at the least maintaining spending and increasing investments. I would also suggest using a compound interest calculator or a 401k calculator and play with the numbers as a motivational tool. Seeing how compounding of my money could grow over time was also a very effective tool for me. And what an amazing one it is! What exercises, tools or the like have helped you on your journey to financial freedom and independence?

we’ve also been tracking our net worth for the past 15-yrs or so. you are absolutely correct about that being a motivator.

[DangerDad]

I became much more focused on finances—including NW and other metrics—since deciding to retire the end of this year. I review and record all this financial stuff quarterly.

[W2R]

I do not track my net worth, since I have no purpose for doing so. But hey, I'd track it if I could figure out a reason to do that!

I like to keep track of my investment portfolio total. However, I keep cash both in Vanguard Money Market funds, and in my local bank. Since I might move cash from one to the other, I track my portfolio plus bank account total.

[omni550]

I've been tracking my NW since 1982!

My tradition is to do it on January 1 (for the prior year). I use a copy of the same form I've always used and a pencil to fill it out. As some year-end information trickles in over the next few weeks, I update the form until it's complete. And then I compare growth from the prior year. I keep an ongoing graph in Excel.

It's fun seeing how things have developed.

I credit this NW tracking behavior with my interest in retiring early, a concept I didn't even know existed back then.

When I got my first computer in ~1997, I typed "retire early" into Google and it led me to intercst's (John Greaney's) site...which led me to the boards on Motley Fool a short while later...then, finally, to this forum in 2004.

And, best of all, I retired in 2007.

And I still do my NW calculations on January 1.

omni

[pjm-7]

I have been recording my net worth semi-annually since October 1982. I have always kept it written in the same format in a composition book. Even with computers there has always been my trusty composition book. I've debated a few times over the last couple of years of stopping the exercise. It's a habit that is comforting for me. Last year I got to the end of the composition book. I bought a new composition book (on sale during back to school sales ), and continued on my way.

I do check account balances and might make adjustments monthly. However, my composition book is still there for me.

[JackJester]

I don’t see the benefit of calculating Net Worth for someone close to or in FIRE. When I look at the various NW on-line calculators it is things like ... enter your:
1) House worth estimate
2) Checking account
3) Savings account
4) Retirement accounts
5) House mortgage owed
6) Credit Card debt
7) Personal loan debt
8) Student Loans
9) Car Loans debt
10) Other debt

Well, with the house paid off, and no credit card or car loans, etc, then it really just boils down to
A) How much $ we spend
vs
B) What is the total $ of our checking, savings, and retirement accounts.

$ In vs $ Out. KISS. The fact that my house might be worth $ 1mil in the HCOL PNW doesn’t affect how I decide to manage my life. Maybe if I wanted to (or needed to) sell and move somewhere else that is LCOL I might care.

[RobbieB]

Yeah, investment account not even on the list. That says a lot.

[rk911]

Quote:

Originally Posted by JackJester I don’t see the benefit of calculating Net Worth for someone close to or in FIRE. When I look at the various NW on-line calculators it is things like ... enter your: 1) House worth estimate 2) Checking account 3) Savings account 4) Retirement accounts 5) House mortgage owed 6) Credit Card debt 7) Personal loan debt 8) Student Loans 9) Car Loans debt 10) Other debt Well, with the house paid off, and no credit card or car loans, etc, then it really just boils down to A) How much $ we spend vs B) What is the total $ of our checking, savings, and retirement accounts. $ In vs $ Out. KISS. The fact that my house might be worth $ 1mil in the HCOL PNW doesn’t affect how I decide to manage my life. Maybe if I wanted to (or needed to) sell and move somewhere else that is LCOL I might care.

i have all of our bank accounts, brokerages, retirement accounts, home and personal property values and so on in Quicken. i wrote a simple excel spreadsheet that takes the Quicken NW values and shows how we're doing vs. last week, last year and all previous years. i break it down by taxable, IRA, cash, 457's, etc. i update the Quicken share prices every friday or saturday after the market closes for the week and then pump the resulting numbers into excel. i enjoy the weekly exercise even if there is little to no practical use for those numbers now that we're FIRE'd.

[BlueberryPie]

I've tracked my NW every 4-5 years by adding up balances into my accounts, surprised when I crossed the 1M and didn't realize it until a few years later (the decent returns we've had in the last decade help)
The idea was not to look at it too often, you're in for the long term and Stay The Course.

It changed this year though, now that I'm about 10 years from retirement, I do pay a little more attention. I use the free Personal Capital tools to track all my accounts and TBH, I look at it way too often, mostly our of curiosity and fascination, but it also helps with rebalancing, whcih I used to do yearly-ish but I now do quarterly.

Between their MonteCarlo analysis and Firecalc, I get a good picture of what to expect under different situations (Firecalc shows that if I stay on plan for the next 10 years I have 100% Monte Carlo success, and Personal Capital shows 95%) so both help with "what if scenarios" (I'm thinking about retiring a few years earlier)

The different visualisations in Personal Captial did help me optimize a few things (I was paying more in fees than I realized, and I had more cash spread into different accounts than I realized)

I also use their tool to track my monthly spending. I'm lucky and thrifty enough that I never really had to worry about budgeting, if the bank account is on a down-trend over a few months, I just need to curtail spending... but as I'm trying to figure out more patterns to see what I may be spending money on in retirement (based on what I do today). the personal capital budget helped me understand where my money is going (damn, I spent more money and fine wine and whisky than I realised!)

[Sunset]

I track Net worth (not counting tax due on IRA withdrawals) once per year.

I even graph it so that I can see a pretty picture, of course that dip after 2014 was not a pretty part

[DrRoy]

I've been tracking monthly since 1981. All in a spreadsheet since they were available.

[chassis]

Quote:

Originally Posted by Blue531 I've been tracking my net worth on a monthly basis since 1999--the first year in which it first went positive. I had been investing in my company 401k for a year and saving money aside from it, too. I have found tracking NW to be a simple yet effective exercise that kept me motivated and on the steady path to financial freedom. I would suggest to anyone starting out to begin logging theirs. It is very empowering to see one's wealth increase little by little over time, assuming, of course a person is working toward decreasing spending and increasing investments or at the least maintaining spending and increasing investments. I would also suggest using a compound interest calculator or a 401k calculator and play with the numbers as a motivational tool. Seeing how compounding of my money could grow over time was also a very effective tool for me. And what an amazing one it is! What exercises, tools or the like have helped you on your journey to financial freedom and independence?

Fully agree. Tracking one’s finances is a form of goal setting and holding oneself accountable for the result.

Tools:

Excel
Resources on financial sites: Fidelity, Schwab, Prudential, Vanguard, MassMutual, TRowe Price, Bloomberg, and more
Portfoliovisualizer
Firecalc
I-orp
SSA.gov
Federal Reserve Bank data warehouse FRED
Books - Millionaire Next Door, Peter Lynch, Warren Buffett
Podcasts - Barry Ritholtz/Bloomberg
My friends and family who are successful in business and with their own finances

[racy]

Quote:

Originally Posted by Blue531 ... I would also suggest using a compound interest calculator or a 401k calculator and play with the numbers as a motivational tool.....

I created a spreadsheet to forecast my future 401k balances. The inputs I used were: amount already saved for retirement, salary & annual increase, percent of salary contribution, annual growth rate, my age and company contribution.

It was interesting to see when the cumulative investment returns became greater than my total contributions. And, when the portfolio balance crossed $1,000,000.

[audreyh1]

In terms of actionable:

That net worth minus house number (total investable assets) is what lets us know if we have reached early FI. Particularly for those with no pension on the horizon. Many folks planning ER have a number they hope to reach.

Besides the fact that Quicken always displays that totals number whenever it’s opened.

[Toocold]

I've been tracking for 15 years on a quarterly basis. I also projected out income, debt, networth then. It's interesting how this compares to actuals -- I've done much better than my spreadsheets!

Now, RE'd almost two years in, I update it on a quarterly basis. It used to be motivating. Now, it's a perfunctory exercise.

[BlueberryPie]

I find the idea of fixed "compound interest" for a 401(k) to be an over simplification unless you have 30-40 years to go. The stock market or your portfolio does not return a fixed percentage.thats why tools like Firecalc which look at best and worse case are useful. They sure help dispel any sense of oversimplification. There are Firecalc calculations where I have a 1% chance to run out of money by age 99, but also have a 1% chance to die with $20M in my bank account! Understanding the spread (i like to look at the 10th percentile) is more useful than a fixed interest calculator.

[TheWizard]

Quote:

Originally Posted by BlueberryPie I find the idea of fixed "compound interest" for a 401(k) to be an over simplification unless you have 30-40 years to go. The stock market or your portfolio does not return a fixed percentage.thats why tools like Firecalc which look at best and worse case are useful. They sure help dispel any sense of oversimplification. There are Firecalc calculations where I have a 1% chance to run out of money by age 99, but also have a 1% chance to die with $20M in my bank account! Understanding the spread (i like to look at the 10th percentile) is more useful than a fixed interest calculator.

Quite correct.
Pondering about whether to use 6% or 8% annual growth rate for your portfolio over the next twenty years before retirement is probably a waste of time.

What matters is figuring how I can get my annual long-term savings rate from 12% up to 15% up to 18%, etc.
That's what matters...