#005: The Naked Truth About Your Net Worth
If you care about your income, you probably should know how much you are worth.
Today, I am going to show you why you should track your net worth.
While most people depend on a regular income they are not aware of what percentage of income they are spending, saving or investing.
By measuring and tracking your income and thus, your net worth you can control your personal finances and start building up wealth instead of hopping from pay check to pay check.
The problem is that most people — low or high income — don’t have an intentional spending habit nor a financial game plan.
1. Why should you care about your net worth?
If you depend on a steady income — which most people do, except the ones who are very rich — then you probably are selling your time for money a.k.a generating active income.
If this is the case, then you are — consciously or unconsciously — aiming at a situation where you no longer depend on active income.
A definition therefor is called retirement. Some people retire at age 30 but it is more likely to retire around age 65.
Why can people retire?
Because retired people’s net worth is high enough so that they no longer need to sell their time for money.
Instead, they are free to pursue any activity of their choice a.k.a. free time.
If you know your net worth, you know how much free time you own.
For example, if you are worth $100,000, this might be worth one or two years of free time for you depending on your lifestyle.
Thus, there is a 1-to-1 relation between the time you own and your net worth.
If you care about your time and know that this is your most important finite resource, then you should care about knowing your exact net worth.
2. What are your benefits knowing your net worth?
The main benefit is: building wealth.
Building wealth over time starts with knowing and tracking your net worth.
If you are in control of your personal finances you will be able to make financial decisions with intention.
However, if you don’t know how much you earn, spend, save, and invest, then you are living a life month by month and year by year without actively being in control of your free time.
It does not have to be like that.
3. How to calculate and track your net worth?
There exist a lot of financial planning tools on the web.
But none of them will exactly fit your use case.
Instead, the only thing you really need is an excel or Google-sheet where you report on a monthly basis your
- gross income: all income you get prior deductions including potential contributions from your employer to pension funds, etc.;
- net income: the amount of income you receive to your bank account;
- potential contributions to pension funds and their current balance;
- potential monthly investments in stocks, ETFs, etc. and the related current balance of those assets;
- potential deposits you have made and their current balance;
- potential contributions to savings accounts and their current balance;
- potential contributions to Crypto accounts and their current balance;
- balance on payment accounts;
- debts (credit card, etc), mortgages, etc.
You get the point. It is as simple as that.
If you track those metrics on a regular basis in your Google-sheet you can get enormous value out of it.
You can calculate your monthly savings rate as well as track your net worth month by month and develop a strategy to build up wealth.
Your monthly savings rate tells you how much free time you are saving each month.
For example, if your monthly savings rate is 5%, it means, you have to work 20 months to get 1 full month of free time (because 5% times 20 = 100%).
That’s because you’d need to work 20 months to save the equivalent of your monthly income.
Tracking these personal metrics allows you to develop an intentional spending habit as opposed to living pay check by pay check.
You can set financial goals and self-improve through achieving them.
If you have not started to track your net worth yet: Start right now !
I have prepared a template as a Google-sheet so you don’t even need to think about how to set up your tracking system. Here’s the link: download the template now.
Just copy or download the sheet and start filling it in and customize it according to your needs.
Key takeaways
- Your net worth is directly linked to your free time.
- Tracking your net worth is your first step to building wealth.
- Start tracking your net worth today. No excuses. You can use my template as a starting point.
Don’t miss the next post, where I will explain why selling your time for money is a bad deal and how to start generating passive income.
