The Power of Longitudinal Net Worth Tracking
Four years ago, I signed up for an account with Mint.com. I diligently added all of my bank accounts and waited impatiently to see my net worth. After inputting all of my money, I had a whopping -$17,661.72.
At that time, in May 2012, I was one year into a 2-year Master's program and bringing in a whopping $902 per month from my teaching assistantship stipend. After rent and auto insurance, food and textbooks, I was left with little to live on.
Knowing I'd have to take out more in loans the next year, I signed up for Mint to see my damage in one place. Plus, I thought later it would be cool to see how far I would have come. Eventually I'd make real money, right?
Fast forward to May 2016: my net worth is now over 150% what it was at its lowest. Sure, it's still not as high as the 100+ bloggers ahead of me on the Rockstar Finance Ultimate List of Blogger Net Worth. But, it's my money and my progress.
So often when I read personal finance books and blog posts, I'm struck by the minutiae. We focus on the latte factor and how small purchases add up. We celebrate every small success with a side hustle and each deal when we paid way less than retail. We feel a sense of triumph when we're able to make a particularly large student loan payment. We relive even modest financial mistakes in the hopes of preventing a reader from following in our footsteps.
We spend so much time and energy on a micro level that we sometimes may fail to see the whole, bigger picture. Even by sharing my monthly net worth updates, I only compare the given month with the previous. However, the true value of net worth tracking is in the macro sense.
Look at that lovely trend from red to green!
Look at how the black net worth plot points were so stagnant and are now leaping up, up, and away!
Longitudinal net worth tracking is so valuable. Seeing this data spread over a longer period, events that at the time feel like a mountain are made into a mere molehill with the power of a little more perspective and hindsight.
Over time, I can see how my work is paying off, how saving more and more in the last few months has had a dramatic effect on my financial health.
By exporting this data from Mint as a .csv file to Excel, I can play around. I can add a trendline and calculate the slope of the line indicating my progress (nerd alert!). I can even project that trendline to dates in the future to estimate my net worth .
Using the data from this year to date, if I continue on the same path, I will be worth $32,000 by December (nearly twice my net worth now!). In three years, I could have a net worth of $100,000. If I stay the course, I will have $1,000,000 at age 67.
Is this a practical estimate? Perhaps not. It doesn't take into account any salary increase, compound interest or any return on investment, nor does it foresee any large purchases like a home or a new car or inflation. This admittedly simple model just predicts my net worth given the data collected on Mint over a certain period of time. However, it's extremely motivational.
I recently read Your Money or Your Life as part of the Personal Finance Book Chat (#pfbookchat), the first in a collection of books selected for a summertime book club. One of the strategies touted by the author to lead the uninitiated toward financial integrity and independence was to track monthly spending and savings on a wall chart. A bit antiquated, the author recommended tracking this data on graph paper and updating it monthly. One of the followers even posted this ever-evolving graph in her closet as a constant reminder.
I scoffed a bit at this suggestion to use graph paper, an office supply that I haven't touched since high school algebra class. I have a plethora of digital data-crunching spreadsheet programs at software at my fingertips! Whether you track these figures manually or digitally (using a service like Mint or Personal Capital), the power lies in the long-term analysis.
After just a few months on the right track, you, too, can say, "Man, look how far I've come!"
Tracking your net worth, not just in an isolated month-by-month basis but over the long-term, will show you where you've been and where you're going.
I've shared my net worth updates here on the blog since the beginning of the year. I urge you to calculate your net worth and watch it grow over the years, even if you choose not to share it on the Internet for the world to see!