So much financial advice is about getting clear on how you spend your money, and setting up guidelines to make sure you don’t overdo it. The problem is, my mind hears the phrases “track your expenses” and “create a budget” like this: Mwannf fwann schawn pharfff blah blah snore.
I mean, I’m a responsible gal. I know my way around a bank statement and a spreadsheet. But every time I focused on creating a realistic budget, I just felt broke, no matter how high or low my monthly income was. Tracking my expenses made it seem like the money was spent before it ever even officially arrived in my bank account. For me, it was stressful—and defeating.
The other problem with focusing only on expenses and budgets is that it kept me looking at just a sliver of my financial pie. I have numerous accounts, including a personal checking account, a family checking account, a business checking account, an emergency savings account, a SEP IRA, a Roth IRA, a traditional IRA, and two regular investment accounts, and that doesn’t even include credit cards. Based on the directive to monitor expenses, I really only tracked my business and joint checking accounts because that’s where the action was. Savings and investments rarely crossed my radar (unless I needed to tap them for an expense).
But then I read a quote that got me thinking differently: “What you focus on grows.” When it came to money, I was focusing on the wrong side of the equation—the part where my money was no longer mine.
That’s how I came to start tracking net worth, which is defined as the sum of all your assets minus all your debts. In other words, if you cashed in everything you could cash in and paid off everything that needs to be paid off, your net worth is how much would be left over.
I found a simple net worth tracker and started filling it out quarterly. There are lots of great ones out there. Citi® Financial Tools, for example, includes a Net Worth tool that provides an analysis of your net worth and investments, as well as a Money Tracker that shows you a clear picture of your cash flow (expenses and income).
Now that I focus more on net worth, I view expenses less as drains on my income and more as investments. As I write this, an electrician is working on our basement, re-wiring it as part of the process of a renovation that will give us an extra 400 square feet of living space. Instead of fretting over his bill, I can increase the value of our house the next time I’m recording our numbers and see how that relatively small expenditure gives our net worth a nice boost.
This approach still takes expenses into account, as a lower bank account will decrease your assets column and a higher credit card balance will add to your debts. It’s just that now, when I’m shopping, I look at the price tag on that pair of jeans and consider more than whether or not I’ve got the income to cover them, or how they look on my bottom—I picture how they’ll affect my bottom line. That’s an empowering incentive indeed.
Have you measured your net worth? How did it affect your financial perspective? Tell us in the comments below.