End of year checkup; how I keep tabs on my finances
October 10th, 2021 by D.C. Poc
In my honest opinion, yearly checkups are a very good thing when it comes to personal finance. If you don’t compare yourself against yourself, how do you know how you’re doing?
What I measure and why
There are a few things that are included in my ‘Net Worth Tracker’ that I created in Google Sheets. They are:
- Retirement account balances
- Savings & Brokerage balances
- Mortgage balances & market value of all real estate
- All other debt balances
- Miscellaneous assets (classic cars, boats, off road vehicles, valuable paintings, etc.)
This gives me (and my wife) a picture of how much we have in each account and category year-over-year. For me, I started doing this in 2014, when I was in my mid-twenties. This was the first time in my life I wasn’t completely broke. Yay!
The famous “Net Worth” argument
A lot of people will tell you that net worth doesn’t matter and it’s a good way to brag, blah blah blah. I 100% disagree with this.
In case you forgot, net worth is the result of your assets (cash, investments, real estate) minus debts (mortgages, car loans, student loans). Essentially, net worth is the amount of hard cash you would be holding if you sold everything you own.
Why is this important? Well, it gives you a good picture of your overall financial health. Additionally, it allows you to see how you stack up against the societal averages. Yes, I know we don’t support keeping up with the Joneses, but at the same time, we need to have a barometer for success and failure. Without this, we’re aimlessly wandering through life financially.
According to Forbes, the median (middle) net worth for someone under 35 is $14,000 for 2021. Are you above or below this? For ages 35-44, the median is $91,000. How do you stack up against this? The averages for these same ages are $76k and $437k, but remember this can be deceiving due to very-high net worth individuals pulling the numbers up, so don’t get discouraged!
What does my analysis tell me?
At the end of each year, I can look at my current account balances vs. what was projected, my current net worth vs. years prior, real estate appreciation, etc. This year, for instance, I saw a huge equity increase on my duplex. This isn’t because I paid down the mortgage, but rather, because the housing market has appreciated significantly. I also saw an increase on my personal home from adding a pool (although I lost cash), and my single family home rental because I did some needed repairs that increased the market value.
Looking back, I can see that my investments and overall net worth is starting to increase much faster than it was years back. This is giving me the motivation and drive to keep pushing to achieve our goals.
For me, I can’t wait to update all of our balances on December 31st each year to see how we measure up against our projections. My wife and I really enjoy seeing our financial growth from year-to-year. It’s almost like we’re closing one chapter and opening another for the new year.
Is this really necessary?
Maybe not. If you have a salary of $500k a year and live in a $2k a month apartment with no debt, you probably can’t go wrong no matter how you approach this. But at the end of the day, why wouldn’t you want to track your financial progress? Why not set goals and milestones? I do this in nearly every aspect of my life, so it comes easy here.
Maybe you start with a small goal of amassing $100k in retirement accounts, or possibly a $250k net worth. Maybe you set a goal to eliminate credit card debt by the end of the year, which will help both your debt-to-income (DTI) ratio (exactly what it sounds like) and increase your net worth. Start small and start working up once you get a grasp on the tracking mechanisms. Either way, start measuring some progress and see where you could be in the future!
Where to start
Start by creating a simple table in Google Sheets or Microsoft Excel. This doesn’t have to be elaborate as you’ll slowly improve it over time. My spreadsheet is way more advanced than when I started in 2014. In fact, most of my calculations are automatic now and the only adjustment I make is to end of year balances. Eventually, you can start adding charts and graphs along with color-coded goals and virtually anything else you can think of!
Don’t forget, “If you can’t measure it, you can’t improve it” - Peter Drucker.
D.C. joined the Marine Corps right out of high school. When he left active duty, after 5 years of service, he quickly earned a bachelors degree and an MBA. He got his first private sector job at a modest salary and quickly worked his way up through promotions. Once he started making decent money ($38k at the time) he quickly realized he needed to learn how to save to secure his future. After nearly ten years of research, he wants to share his knowledge and financial best practices so more people can become Wealthy Idiots!