What’s Your Net Worth?
Posted by Gail | Filed under Money Management
We’re half way through the year and I’ll bet dollars to donuts you haven’t done your mid-year net worth statement to see how you’re doing!
One of the best ways to see how you’re doing on the savings front is to track your net worth. By monitoring your progress towards your savings goals, you’re more likely to stay focused. Fanatics do this as often as every month. But you should have a life, so doing a net worth update every six months or so should suffice. However, if you need the motivation to keep saving, by all means check how you’re money is growing more often.
There are several net worth calculators on the web, including under my Resources tab: Net Worth Statement Find yourself one that you like and plug in your numbers.
People routinely include their “personal effects” as an asset. Don’t bother. These aren’t very saleable and you’re just deluding yourself if you give your stuff more value than you could ever realize from selling it.
On the liabilities side of the equation, don’t forget to include your overdraft (if you’re in it), buy-now-pay-later purchases on which you still owe money (even if it isn’t due yet), back taxes, money you’ve taken from your RRSP to buy a home or go to school, and (heaven forbid) pay advance loans.
If you’re adept at Excel, why not create a net worth spreadsheet of your own (feel free to copy mine) so you can keep track of your improvements over time.
While your net worth isn’t the be-all and end-all of your life – it can’t measure your job satisfaction or your overall sense of contentment – it is a great tool for track where you’ve been and where you seem to be going financially. There’s nothing like the black and white of the numbers to make you really pay attention. As I always say, the numbers don’t lie.
July 3, 2012 at 6:33 am
I have to admit that I currently have no debt or assets like a home, so my net worth statement takes all of 10 minutes to add up once I login to all of my accounts. I tend to calculate it whenever I login to my account with my RRSP mutual fund, and I see how it’s doing.
July 3, 2012 at 6:56 am
Yes, numbers don’t lie. I’ve been lying to myself lately as far as my savings go. I really can’t say that I’ll save more once I get my next paycheque. I’ve noticed that savings have to come from each paycheque for me or I will never save anything other than the 18% each month towards my RRSP. I want a new couch to replace my 11 year old one and I’m tired of adjusting the quilt I have covering the worn parts. Ah well – my cat likes my cushy out of shape couch. I’ll cancel my order
July 3, 2012 at 7:52 am
Never done this before but will give it a try. I don’t understand how to put an amount on a pension that will go on for life with yearly inflation costs added. I also wonder about putting a value on art which fluctuates so much. Any advice?
July 3, 2012 at 8:39 am
So glad to see the First Time Home Buyers plan on the liabilities side of the equation on your spread sheet, Gail! No one seems to be listening to me when I say I don’t want to tap into my RRSPs for a home down payment because I don’t want to be paying back another debt.
I update my net worth once a month, but it’s frustrating to see my savings get evened out by declines in the market. Sometimes I feel like I’m not making any progress at all!
July 3, 2012 at 8:46 am
I do this yearly with my financial planner, but some years (when the stock market is way down), it’s very depressing. We save about 30% of our gross income and yet some years, we’re worth less than the year before. I know overall, though, we’ll grow our money. And I try to do this only annually because the stock market can be so volatile so there’s no need to get my hopes up and then dashed several times/year.
July 3, 2012 at 8:53 am
I’ve been following Gail’s blog for 4 years now but today is my first post. The net worth article struck a cord because my partner and I do our net worth on the first of the month. We call it equity day. It is a great habit to get into because it does keep you focused. When we first started I had negative equity thanks to student debt, when I had zero equity I was elated as no one owned me anymore. We went from $25k in student debt in 2004, to no student debt, owning both cars, owning a plot of land, having a growing RRSP and most of all being mortgage free! We paid off our $225k mortgage in 36 months, by staying focused, monitoring our spending and doing our net worth. Here’s to equity day everyone…
July 3, 2012 at 9:10 am
Funny, I just sat down on Sunday and did this very exercise. I used to do it monthly in 2007 when we moved into our “new” house, but that was a bit much. Now I do it about twice a year. It was interesting to see how our net worth has doubled in 5 years, so that’s good but 5 years ago we had more cash savings than we do now (in related news, we have a 5 year old that I think has something to do with it).
I’ve kept our house value at price we paid in 2007 + 50% of the improvements we’ve put in it, less 7% to cover realtor fees. In truth I suspect our house has gone up in value at least $100,000 more than this estimate, but you only know how much something like that is worth the day you sell it.
July 3, 2012 at 9:24 am
Having sold a whole bunch of stuff recently on Kijiji, and some stuff at high end second hand furniture stores, I can definitely say your personal effects are worth almost nothing. It was worth it to me to sell so I wouldn’t have to pay someone to take it away, but that is it. As an estimate, use 5% of the purchase price.
Also remember that couches, beds, pillows, carpets etc can not be sold anymore bc of concerns regarding bed bugs.
Jewellry maybe has value if it can be melted down. You can take it in to get an estimate. High end pieces (think more than $20,000) can recapture some value in an auction.
Art? Google the artist’s name. If it isn’t being sold by Heffel or Dupuis (in Canada), it’s probably worth very little.
July 3, 2012 at 9:36 am
I am a bit of a fanatic, I do my budget bi-weekly and track all my assets and liabilities monthly, so my mid year review is over. It’s actually fun to see how I am doing and where I may need to improve.
July 3, 2012 at 11:26 am
Ooh, that was kind of a fun exercise. I don’t have any debts, so it was pretty much just adding up all my bank accounts. It was nice to see it was about $5000 higher than I was expecting.
Also nice to realize that I *can* save while being a grad student. I’m hoping I might be able to push that another $5000 by the end of the year.
July 3, 2012 at 11:36 am
I usually wait until the middle of July and January to do our Net Worth as our statements start to come in the mail around then. I also always underestimate the price of our home and condo in order to allot for real estate fees, etc. But it is always nice to see that the numbers are going up every six months and it puts a smile on our faces!
July 3, 2012 at 12:12 pm
I have the same question as Rae – how do I figure out what my company pension should be for the spreadsheet? I have a defined benefit plan and get a statement telling me what I will get each month when I retire but no idea what it is worth now?
July 3, 2012 at 1:46 pm
Since I got my property tax estimate for this yr, I’m now worth $26,000 less than last yr. I get on the website “MINT.COM ” and it keeps track of everything, all my investments, bank accounts, net worth, etc. The best part about this site is it’s FREE and every time you log on it automatically updates all your info so you can see if your stocks are up or down, at what percent they moved, where and how much you spend each month, etc. It is so easy and convenient to see everything in one place. I love this site.
July 3, 2012 at 2:08 pm
Rae & Amber – Not sure whether this is right (and I’d be grateful to know what Gail thinks) but when I do my net worth update I use an approximate commuted value for my pension which is what I would get in a locked-in RRSP if I left my employer. The way my pension works this is equal to two times my contributions plus a modest amount of interest. Hope that helps! I did my monthly net worth update on the weekend and checked in on my two-year goal. It feels nice to be getting to where I’d like to be
July 3, 2012 at 3:01 pm
@ Amber – at least with my employer you can call your retirement people and ask them what the net cash value is (ie the amount you’d get to take with you if you left the company today). You can use that. Remember it’s an approximate idea anyway, for example I list the full value of my rrsps even though I know there’s some tax penalties to pay when I withdraw from it, but its a rough idea. Basically I want to know if we’re moving in the right direction, and how quickly or slowly. I think it also helps for those of with homes to know what % your house represents of your total net worth. I read once a good rule of thumb is:
Subtract your age from 90 – that should equal the maximum amount your house should represent. So in my case my max is 90 – 37 = 53%. For a lot of people my age, I suspect it’s much higher than it should be. Obviously this is a rule of thumb, exceptions will apply.
July 3, 2012 at 3:08 pm
I have a monthly recurring appointment set up in my email/calendar that pops up three days before every month end so I remember to login and get the month end balances on the mortgage and both of our RRSP accounts. I update those number on my spreadsheet and have my new net worth. Five minutes tops. I don’t assume there’s any value on our vehicles (2001 and 2004) and don’t count any of the contents of the house. I review the estimated value of the house each year and adjust if necessary, but otherwise that’s it. When you have no loans, credit card balances, line of credit balance etc, there is very little to update in order to get your answer. I never update for the balance in the bank account – I just leave an assumption of $1000, regardless of what is actually in the account on the last day of the month. On a weekly basis I remove everything over $1000 in the account and contribute to our RRSPs or make an extra mortgage payment. If there is more than $1000 in the account at any point, it won’t be there for long before I move it out, so assuming $1000 works for a general net worth calculation. I did my June month end updates over the long weekend and will do it again August 1, Sept 1, Oct 1….
July 3, 2012 at 8:36 pm
Actually, I have done mine! I’ve been doing my net worth calculation at the end of every month since March 2010
It was a huge tool for digging myself out of debt. Currently my net worth is sitting just under the $80,000 mark. I figure that’s not bad for being in my 20’s.
July 4, 2012 at 6:46 am
A question: The flat I bought last year is currently 2/3 built, scheduled to be finished in November. Currently 2/3 of its price is paid. The rest of the money is in a savings account. There is no mortgage.
Does that make it an asset (I own the the value of 2/3) or a liability (I owe 1/3)?
Is there any formula how much it will lose in value once I move in? (With cars they say, 20% loss when driving off the dealer’s yard…)
July 4, 2012 at 8:56 am
@ inge – it is definitely an asset not a liability. I would just put the value of the house (in this case, the price you paid) as your asset value, and ignore the money in the savings account (pretend it’s spent, because it has been really).
Typically, and I say typically, real estate doesn’t depreciate in value as its a commodity, not a product. So cars depreciate because there’s always a newer, cheaper and better equipped car coming in 2013, real estate doesn’t typically work that way unless where you bought you know house values are going down (looking at you Florida 2008). What I did to be safe is just take the purchase value of my house, add in 50% of the value of the improvements we made, and then deduct 10% of that number to cover legal and realtor fees etc. Really house values aren’t known until the very day you sell it.
July 4, 2012 at 10:53 am
@inge. You would add the amount paid and the amount in savings as an asset. Because both are assets, when you pay the remainder, it will all stay as assets.
For the first year, I would value your home at the price paid. Then in each subsequent year, you can research comparables in your area and guesstimate the value of your flat. That is what I do!
I also maintain a little excel spreadsheet where i plug in the expected sale price of my home and it deducts taxes, agent fees, lawyers, and other selling costs and shows me what id actually walk away with after paying off my mortgage. I consider THAT number to be the true asset value
July 4, 2012 at 9:47 pm
We only do a net worth calculation once a year.
Normally we calculate the value of IRA’s and cash in our accounts and subtract our debts on a quarterly basis.
July 5, 2012 at 6:22 pm
Geoff, Casey, thank you!
July 6, 2012 at 5:00 am
[...] Now that half of the year is over, it’s time to analyze your numbers. Gail Vaz-Oxlade wants to make sure you know What’s Your Net Worth? [...]
July 6, 2012 at 11:28 am
We do a net worth calculation only annually, too, and it really helps us feel as if we’ve got a handle on our finances by allowing us to see the ‘big picture.’ Again, great advice, Gail.
July 10, 2012 at 7:23 am
When you need to get cash for annuity payments by selling annuity payments you will find that you have several choices available. You might find that you can get the lump sum for the payments or you also have an option for getting an advance against it. If you only need a small amount to cover an emergency, you can get that as well.
July 10, 2012 at 3:28 pm
Thanks for the reminder. I do my budget every week. It is good to see the overall picture every six months.
July 11, 2012 at 11:04 am
In the US, you can get an approximate home value at zillow.com. This is updated often and give a pretty accurate value.
I am going to do the net worth statement today – yikes – I feel overwhelmed lately and need to redo my budget also. I won some jars in a tricky tray fundraiser and am going to start them in AUgust
July 12, 2012 at 8:10 pm
This is a great way to see if you are on track. Half way through the year you should either be accomplishing some of your savings goals, or realizing that you aren’t and try even harder from this point on. If you do not have a significant savings you should hope that you don’t have a significant debt load and you will still be ok. The only way to know where you stand is to track it and remain aware..knowing leads to succeeding.