Tracking Net Worth and Compound Interest Calculating

[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]

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]

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]

... 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]

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...

 

[tmm99]

I record net worth at least quarterly. The number is always displayed in Quicken. I also compare my net worth against accumulated inflation since I retired. If net worth growth is beating inflation since retiring I feel like I’m I ahead of the game.

I use this cumulative inflation calculator: https://inflationdata.com/inflation/inflation_calculators/Cumulative_Inflation_Calculator.aspx

It's a good feeling when your money is beating inflation. I hope that trend will continue.

Do you add the value of the house to your net worth? It looks like some of us here are doing that, but I'm only adding what we've paid for...

 

[pb4uski]

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.

You can also use FIRECalc to look at 401k growth. Say you have $500k and contribute $15k annually adjusted for inflation and you have another 20 years of work. Enter spending of $1 and portfolio of $500,000 on the first tab and then go to the Not Retired tab and enter 2041 and $15,000 annual portfolio additions.

Because you indicated a future retirement date (2041), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 20 years of preretirement plus 0 years of retirement, or 20 years.

FIRECalc looked at the 131 possible 20 year periods in the available data, starting with a portfolio of $500,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 131 cycles. The lowest and highest portfolio balance at the end of your retirement was $500,000 to $4,888,006, with an average at the end of $2,178,454. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

 

[youbet]

I do not track my net worth..........

I track my portfolio plus bank account total.

Practically, aren't those about the same thing? Just add the value of your house to the portfolio and bank accounts total and it's approximately your net worth. Since housing values usually change slowly, updating that every year or so would be more than adequate.

Maybe I just feel this way since I feel knowing my net worth within a couple percent is fine.

 

[audreyh1]

It's a good feeling when your money is beating inflation. I hope that trend will continue.

Do you add the value of the house to your net worth? It looks like some of us here are doing that, but I'm only adding what we've paid for...

It’s in my Quicken data, but is such a tiny percentage of our net worth and changes so little, I don’t worry about it.

 

[W2R]

I do not track my net worth, since I have no purpose for doing so. [...] I track my portfolio plus bank account total.

Practically, aren't those about the same thing? Just add the value of your house to the portfolio and bank accounts total and it's approximately your net worth. Since housing values usually change slowly, updating that every year or so would be more than adequate.

Maybe I just feel this way since I feel knowing my net worth within a couple percent is fine.

It seems to me that the dollars in my bank account or funds at Vanguard have a specific, immediate dollar value. I feel like the value of the house does not, and has the potential to be a giant "fudge factor" in the computations. It's not a number so much as an opinion. One could get a value from Zillow, from realtor dot com, from sales prices of neighborhood houses that one THINKS are equivalent, from Crazy Aunt Sally down the street, or from any of a number of other sources. One could really get an off kilter result if adding in house value, IMO, and it doesn't even take much effort to do that. That may be especially true now that we are in such a frothy housing market.

Again, this is my opinion! Do what you want. I just see no value in a result that is based on vague estimates.

Also, I do not plan to ever move so it makes no practical difference to me if my house is worth 10 million dollars or 10 cents. It's just the place where I live. Therefore I simply assume that it is worth $0.00 .

 

[karen1972]

Quicken Net Worth tracking was a huge motivator for me and let me get to my goal.

I met someone once I was already at FI, we bought a bigger new construction home end of 2018 setting us a bit back, but entered this year with under 30 failure scenarios running Firecalc so created what I call our countdown calendar.

Using Firecalc investigate tab, I plugged in and figured out the $ we need to cross each of the last 28 scenarios to get to 100% success with merged finances. Put it in calendar format so its easy to see on a single page, has the $ to 100% at the top where the Month would go.

We only have 13 squares to go.

 

[chassis]

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?

Let's be clear on the net worth calculation.

Net worth = all assets - all liabilities. Excluding assets (like RE) or liabilities (like mortgage debt) is not a net worth calculation. Net worth and owner's equity are synonymous. Fudging the calculation by picking out this or that is simply fudging.

To the OP: "compound interest" or rather compound average growth rate (CAGR) is a useful measure in my view. CAGR is return on equity. CAGR when applied to historical net worth filters out all of the noise: the vacations taken in a good year, the market losses in a bad year, the year we sold a house, the year we bought a house, the year with no income, etc. It is a fairly high level calculation on your financial performance. I calculate CAGR in 1/3/5/10/15/20 year rolling intervals. It's very useful.

I use my own personal CAGR to sanity check my forward-looking retirement model. One's own CAGR is a reasonable indicator of future performance. It's a quantified measure of one human's, or one household's, financial behavior.

 

[NW-Bound]

I have a diary that logs the daily total value of my investable accounts, going back to 1999.

I never look at the values of my 2 homes, but just now realize that they add up to a 7-figure sum. That is still a lot less than my investable accounts, which are a lot more liquid than the homes.

I never bother to include the homes in Quicken or MS Money. Even with no mortgage, my homes cost me money and labor for maintenance. My investable accounts generate positive cash flow for me. It's obvious what I like more.


PS. I should have kept track of my expenses early on. I only started doing that in 2010.

 

[sengsational]

I Quit Tracking

My liquid net worth sheet that I started in 1987 got more "features" over time, such as IRR for each position. Even though I only updated it quarterly, it became too much trouble to keep up to date, so a few years ago, I quit updating it. It was more than net worth...it showed netted income and expense for the quarter and so I could see how much contribution to savings there was. But too much trouble to maintain.

As a replacement, I built a web scraper that pulls pages from all of my 6 financial entities and drops the current balance of each position into a spreadsheet. The scraper also has the asset allocation split, so this let's me monitor for rebalancing. It's all automated, but they're constantly changing their web pages, so I've always got tweaking to do. At least it's not repetitive data entry.

 

[ThunderFIRE]

I've been tracking NW since 2007. I don't even remember why I started. I do it monthly and the "old school" way by logging into every account and entering data into an Excel spreadsheet.

I've considered using one of the aggregator tools like Personal Capital, but for me I find the exercise of manually logging into every account (brokerages, multiple 401k's, and three pension accounts) is a good way to make sure my passwords don't expire and I'm seeing any messages from the various sites as many of them have transitioned to dual factor authentication, etc. and need more information (like a cell phone number for texts).

I'll be retiring in the next several months and expect that I will still log everything monthly. It is a good exercise for me to stay motivated in accumulation mode and will be a good exercise for me to watch our expenses after we retire.