I started logging our net worth each month. I use our cash and stock investments minus our debt to decide our net worth. I don't count our checking account since this amount fluctuates too often. I don't want to include non-liquid assets in my calculations. I'm also tracking our "multiplier" = net worth / yearly expenses.
This is forcing me to face the fact that most of the money I am currently saving will just be spent within the next 3-5 years on buying a car and buying a home. This is sort of depressing, but I have adjusted my goals accordingly. I'm hoping that by the end of 2015 I will have saved 1x our yearly expenses over our debt.
Thoughts:
- When we go on vacation, our net worth will drop because the vacation account is included.
- When we buy a car with cash, our net worth will drop by the cost of the car.
- When we buy a home, our net worth will drop by the total cost of the home = down payment + loan amount.
- When we pay off debt, our net worth will rise.
- When we put money into retirement, our net worth will rise, though there will be volatility.
Actions:
- Try to buy a less expensive car.
- After buying a car, put the extra money away into a low risk mutual fund and redirect the lease payment into this account. Possibly exclude this from net worth calculations to simplify.
- Pay off debt quickly. Saving to pay off subsidized student loan debt is a good way to increase net worth.
- Reducing expenses increases the multiplier two-fold: decreasing the denominator and increasing the numerator.
Logging our Net Worth
November 9th, 2010 at 05:51 pm
November 10th, 2010 at 12:34 am 1289349298
For the cars - we then depreciate them rapidly. (Expense maybe $1k per year, per car). Otherwise, like you said, large purchases will really throw off your net worth. (No other assets cause this problem, so we don't keep track of any other assets, but cars and home. We don't depreciate the home since it generally appreciates).
Action #2 is an interesting idea to get around the car problem. That works!
I don't include short-term savings (to be used within the year) in our net worth - which eliminates the vacation savings problem.
November 10th, 2010 at 02:32 am 1289356365
November 10th, 2010 at 07:32 pm 1289417527
November 11th, 2010 at 03:45 pm 1289490357
November 12th, 2010 at 10:13 am 1289556811
Jerry