I first wrote about net worth in 2006. I’ve tracked it ever since (with the exception of when I was ignoring my 401K in 2008). To put it simply, net worth measures what you have (assets) and subtracts what you owe (debt). The resulting number is your net worth. There are plenty of good ways to track your net worth, from a handy-dandy home built spreadsheet to free online tools like calculators,  and free services like Mint.com and NetWorthIQ which do most of the work for you.  Net worth is an easy concept to understand, and, in my opinion, a great starting point for financial newbies. Especially for overachievers and A-Types like me.

See, I track almost everything I do. I count calories. I regularly follow fitness plans to get in shape for races. I check items off my to-do list daily (heck, sometimes I even add items that are already done to my to-do list just so I can cross them off). That’s why net worth was an easy concept for me to rally around – it’s basically calorie-counting for your finances,  but with much faster (and far less painless!) gains.

When I first calculated my net worth four years ago, it was (drumroll please) $2,800, according to my post. Determining my net worth was an important step in my financial life because, like Second City’s sassy gay best friend, net worth tells it like it is. And my net worth told me I needed to make some changes in my spending patterns.

Although determining my net worth was daunting, I was really pleased with the results once I started tracking my progress regularly. I could see my numbers moving with every loan payment and every dollar saved. It motivated me to save more, pay off more, and stay away from making big purchases that depleted from my net worth.

Today, only four years later, my net worth, according to NetWorthIQ, is $117,942 – that includes my cash, savings and retirement, as well as my car and auto loan. Saving feels like a game; it’s fun to see my value rise every month. And yet, I know I have really long way to go before I can afford the basics I’m saving for – which include a house, a wedding, retirement, and more.

So now that you know how I feel about net worth, let’s talk about some of the initial points I raised in the beginning.

• How can someone with so many “nice things” have a low net worth?  Just because someone has a great house doesn’t mean their net worth is high; many people today owe more on their house than it’s actually worth, which can put net worth into the negative dollars. And as far as clothes, cars, vacations, and other splurges? Depends on how they’re paid for. If they’re bought on credit or at the expense of savings or retirement funds, they could be contributing to debt. That doesn’t mean everyone with nice things has low net worth or high debt, it just means you can’t assume people are financially healthy based on appearances.
• Why would a recent PhD have lower net worth than someone with a bachelor’s degree?  It’s all about debt vs. assets. If you graduate with $50,000 in debt, and have no retirement fund or cash, your net worth would likely be very low (unless you had other assets).  Someone the same age with a bachelor’s degree might have less loans remaining to pay and may have already opened a retirement fund. The good news is that it’s possible to turn around net worth rapidly with focused effort. Every $500 loan payment will help your net worth grow.
• Why would a financial advisor dismiss net worth?  The argument I’ve seen is that it doesn’t really paint the whole picture, according to the New York Times article.  But I’d challenge you to find anyone who thinks having a high net worth is a bad thing or vice versa.
• Why would someone track it obsessively?  Some people are very goals driven. They figure that by keeping an eye on the bottom line monthly or more often, they can more effectively reach their financial goals. Not unlike people who keep weight loss journals or apps, or those who use fitness sites to track their progress such as Nike Run or Daily Mile.

I’m clearly in favor of financial beginners determining net worth as a starting point and using that figure to track progress while getting excited about saving money. It might not be for everybody and it might not tell the whole picture, but it’s quick, painless, free and easy to see results. Give it a try and tell me what you find.

The post Why Net Worth is My Sassy Gay Best Friend appeared first on The Budgeting Babe.

The first time I checked my net worth in February 2006, it was a whopping $2,600. Most recently in July 2008, the total had grown to $64,000, and I felt like a rock star. But… it’s been a crazy year and July 2008 happened before I lost 40 percent of my 401K and we became a one-income household, so let’s see where I stand now.

(I pause here to calculate my net worth. It takes a while. Maybe you should go get some chips or something…)

(OK, I’m back with an update…)

Holy. Crap.

I am super pleased to say that despite the sputtering economy, my net worth has grown to a very healthy and respectable… $82,000! I’m in shock!

I thought for sure my number wouldn’t have grown, but I have been putting cash away in my downpayment savings fund, my student loan will be paid off within the next year and I haven’t taken on any more debt.

So what am I counting? Here are my categories:

ASSETS
- Checking
- Bank Savings/Emergency Fund
- Downpayment Savings Account
- 401K
- Cash Balance Plan (Retirement)

LIABILITIES
- Student Loan

I think staying away from significant debt while I paid off my student loans really helped me to find a happy balance that allowed me to save. When I’m done paying my loan, I’ve been quietly thinking to myself that I might buy a car (it would be my first) since ours is paid off and more than 10 years old.

But now I’m getting ahead of myself. For now, this little piece of good news will attach itself to my heart like makeshift angel wings. I’m stable and I’m going to get through this economy. And for that, I can celebrate.

The post Net Worth Update… Good News Edition appeared first on The Budgeting Babe.

NEWS!!!!!!
1. I’ve been promoted to Vice President at my job! This is a hugely significant career milestone for me and a top goal on my list of things to do before turning 30. It’s a lot of work, but will hopefully help me reach my financial goals sooner (paying off my student loan and buying property). I’ve literally been celebrating for the past two weeks

2. I got my driver’s license! I have been practicing for almost 6 months in hopes of getting my license this year. Since I technically started trying to drive at 15, and since then have had several permits and flunked two driving tests, it’s been an uphill battle – my personal Everest – filled with frustration and self-doubt. But on July 3, 2008, I rocked the test and officially became a licensed driver in the state of Illinois!

I may have cried at the DMV when the instructor passed me.

Isn’t it amazing what goal-setting can do for you?

NET WORTH UPDATE
I haven’t tallied my net worth in a while, so it was a pleasure to see that despite the market woes, my overall net worth has risen by 15 percent since March 1st, the result of a very ambitious and focused savings plan.

It’s funny; the more my net worth increases, the less I want to spend and the more I want my accounts to grow. At first, I thought I would buy a condo as soon as I had what I considered to be a good downpayment in place. But now I want to be able to put down money without paying PMI, and I’m reconsidering whether I want a condo or to keep saving for a small house with a yard.

It’s so exciting! Thanks to everyone for your support along the way. We’ll get there together!

The post A Net Worth Update – With LOTS of Good News! appeared first on The Budgeting Babe.

Today I updated my net worth, and I’m happy to say I’ve more than doubled it over the last six months! Today’s net worth total checks in at $5,413. Wahoo!

I know that most financial types would probably scoff at a net worth of $5,413. But I’m going to celebrate. What I find most remarkable about my financial journey is the effect that baby steps have on a person’s financial standing. By slowly piling up my savings while paying down debt, and working hard in the process to secure a raise and promotion, I’ve managed to increase my net worth positively over the past six months. And that will go a long way towards meeting my annual financial goals and eventually securing those long term goals, too, like buying a condo or going back to school.

So how am I going to celebrate? Well, I’ll admit, I already did. Yesterday I was at Woodfield Mall to pick up a birthday present for my cousin ($40 shirt at Banana Republic) and I managed to pick up new shorts ($40) and a pair of discount jeans ($40) at J. Crew. Yesterday I was a little embarrased about the jeans, because they were a total impulse buy … they were originally priced at $98! … but today I consider them celebratory presents to myself for meeting my financial goals. ANYTHING to justify a purchase, am I right, shoppers?

>>>>>>>>>>>>>>>>

A bit of fun here: according to the business opportunities blog (http://www.business-opportunities.biz/projects/how-much-is-your-blog-worth/),
my blog is worth $47,975.90. If I added THAT to my net worth, it would be huge! Unfortunately, I’m not making any actual money off this thing (yet!), so I can’t really count it as a financial asset

The post "What am I Worth?" Update appeared first on The Budgeting Babe.

There’s a classic scene on Sex and The City where super chic Carrie tries to buy her flat, only to realize she has no savings because she’s spent $40,000 on shoes over the years. While Carrie could have been building up her personal finances, she poured her earnings into footwear, leaving her with very little net worth!

What is net worth? I did a quick search online and found this definition at investorwords.com:

“For an individual, the value of a person’s assets, including cash, minus all liabilities. The amount by which the individual’s assets exceed their liabilities is considered the net worth of that person.”

In order to understand this definition, I did a little digging into the meanings of assets and liabilities. From the same Web site, I found these definitions:

ASSET: (Perhaps unsurprisingly, this does not refer to any of our super-scrumptious body parts, as in, “Hey baby, check out THESE assets!” Not that I’ve ever actually said that, but believe me, I’ve thought it! Woo-hoo!)I modified the definition a bit to only encompass the individual, rather than a business.

“Any item of economic value owned by an individual, especially that which could be converted to cash. Examples are cash, securities, real estate, a car, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.

From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill).”

Admittedly, I don’t really understand that definition.

To my trusty copy of “Home Buying for Dummies.” Anything with “For Dummies” in the title will clearly help me on this. Here’s the definition:

“…financial things of value that you own, such as bank accounts, retirement accounts, stocks, bonds, mutual funds and so on… (p. 12).”

That’s a bit more clear. Own a towering collection of used Manolos? Sorry, they don’t count. No one’s paying cash for your used shoes – that’s really all they are, after all. However, you may want to consider appraising your engagement ring for your assets column, because it does have financial value. 401k? Inherited art collection? Real estate? Those are assets with real financial value.

“Home Buying for Dummies” has a definition for liabilities, too.

“Debts.”

Seriously? That’s it? What does investorwords.com say about this?

“An obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed. For example, if John hits Jane’s car, John is liable for the damages to Jane’s vehicle because John is responsible for the damages…

…Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.”

Simple enough. Any debt you owe to any lender is considered a liability.

Let’s go back to the original definition of net worth. “The amount by which the individual’s assets exceed their liabilities…

I get it. Now let’s see how it applies to me.

I have never done a net worth calculation before (shocker!) because I’ve been too afraid of what I might see. I mean, who actually wants hard evidence that they have, literally, no value? Or worse – that they have a negative value? For me, the thought that my personal net worth might be negative was like a punch to the stomach. I’ve been working hard, staying on track my whole life – I’ve held a job consistently since I was 14, I graduated every school I’ve attended with honors and I’ve never been in any real trouble. And yet, my net worth could have been absolutely no different than someone who did the opposite of those things. What would that say about me? About everything I’ve achieved with my life? About everything I stand for?

“Sorry Nicole,” I imagined the net worth calculator god would say, “You’ve been working really hard all these years with nothing to show for it. All your intelligence, your accomplishments have been for naught. In the end, these things might make you feel good about yourself and who you are, but you can’t build a life on educational honors and professional recognition. Your net worth is negative. Your bottom line is nothing.”

Then, POOF!, just like that, he’d blow me into the wind, back into reality, where I’d continue to toil away for years to come with nothing to show for it.

Obviously there is no calculator god. And yet, I absolutely dreaded the entire net worth exercise. Until today.

I’ve sensed for a few weeks that my net worth may be about to change from the negative to the positive (based on the financial year-end wrap up entries I wrote to conclude 2005).

A quick Google search turned up what I believe to be a solid net worth calculator that guides users through their asset and liability columns. You can get the calculator here.

After a few deep breaths I completed the exercise. The result, for me, was reassuring. My net worth is turning around.I’m currently worth (drumroll, please…) a grand total of approximately $2,800.

Not a huge amount. But not a negative amount, either. And from what I can tell, if I continue on the path that I’ve set, and don’t incur any additional debt for the next year or two, that amount will rise to nearly $10,000 by December 2006 and perhaps $20,000 by December 2007. Now those are bottom lines to be proud of.

It seems to me that everyone reaches important crossroads at various stages of life. For me, I’m standing at a crossroad now. Behind me is a world of worry, financial instability, dread and insecurity. Ahead of me is the knowledge that I can someday support myself confidently and perhaps support a family, too. It’ll take a year or two to cross that road, and while I’m in the midst of traffic, I’m certainly vulnerable to a big bus or a semi truck that may knock me over, push me down. But if I keep my head up, my ears attuned and my eyes open, if I make good choices that help me cross that road a little faster, I’ll be in a place I’ve been dreaming about for years. The land of financial stability and independence is still far, and the road is treacherous, but now, for me, it’s attainable.

The post Determining My Net Worth appeared first on The Budgeting Babe.