Why you Should Track your Net Worth

Your Net Worth is the positive sum total of your productive assets such as stocks and real estate, minus any liabilities such as a mortgage, student loans or credit card debt.

I like to include the market rate of possessions such cars, motorbikes and tools in the Net Worth too because if need be you could liquidate them and turn them into assets. Although most people would tend to disagree with me on this, and see them instead as depreciating liabilities that should not be included in your Net Worth.

For example, Your Net Worth could be the sum total of an investment property, retirement savings, car and savings account, minus any debt or loans you have on those, such as a mortgage, car loan or credit card debt.

The Net Worth is a useful tool, but it isn’t everything. For example, consider the cost of vocational education such as degrees or other qualifications – I forked out over $300,000 over the 7 years I spent training to become a Pilot, and this isn’t really reflected in my NW figure at all. Actually, if your like most people and take a student loan for this kind of expense then this goes AGAINST your net worth, as a student loan is a form of debt or liability against your name.

Why track your Net Worth?

I think it is important to track your net worth to check in on your financial health. If you don’t track your Net Worth you are not closing the loop with your financial goal setting and there is no way to evaluate your performance. Remember, when setting your goals you should try to remember the SMART framework; set goals that are;

• Specific
• Measurable
• Achievable
• Relevant
• Time-based

The Final attribute to a SMART goal is being Time-based! In the aviation industry we deal with an incredibly time sensitive environment – in certain situations seconds can be the difference between life and death. When we experience an emergency or even just a non standard situation we use a standard decision making template. This standard framework allows us to move from the unknown to the known, in order to most optimally and safely solve the problem. The frame-work I use is ‘GRADIE’.

• Gather: Gather all the facts, evidence and indications
• Review: Review the situation to fully understand what is happening
• Analyse: Analyse potential courses of action and outcomes
• Decide: Crew discussion and decide on a course of action
• Implement: Implement the chosen course of action
• Evaluate: Close the loop and evaluate whether it is working or not

So it can be seen from both a requirement to set SMART goals and using the GRADIE decision making model that setting time based milestones and evaluating a decision over time is important to success, and therefore tracking your Net Worth is a critical task on the journey to Financial Independence.

Captain FI Net Worth

I began tracking my net worth in mid 2019. This was in response to feedback from readers and me wanting to be transparent with my own finances and I wanted to lead by example.

I quickly realised that by not tracking my net worth I was setting myself up for failure as I couldn’t really evaluate whether my investment strategy was working or not! I had always kept a rough idea of how much I had invested in savings accounts, super and mutual funds – but had never taken that definite step to quantify it.

Calculating Net Worth

To calculate my Net Worth I include:

• Cash
• Stocks from the Get FI Portfolio
• My superannuation annuity figures
• Equity in my investment properties
• Physical assets such as my Car
• My stake in any business start-ups.

That last one is a little tricky to validate, so I am just including my physical contributions to the start up for now. When we start getting properly serious with the accountants and get financial evaluation statements I guess I will be switching to my stake in the companies net worth.

I don’t include paid-off student bills and training costs in my Net Worth, however I do like to remind myself of this figure from time to time as it goes hand in hand with tracking my Net Worth and my financial health.

I also don’t track any money owed to me in the Net Worth. Due to the nature of my work, contracting and various side hustles, I am often owed a heap of money through invoices, loans or scheduled payments. I only ever consider that to be mine when it hits my accounts!

My Investing plan

Goal

My goal is to reach financial Independence, Retire Early and start a family. I want to have enough passive income coming in where I can afford buy my own block of land in the country to raise my kids. This means to sustain me forever according to the 4% rule, I need to buy and hold a portfolio of around $500K initially, increasing to around $1M for FI with a family.

Its important that in your pursuit of Financial Independence that you set yourself goals, decide on an investment strategy and then keep yourself accountable to both. Smart investors educate themselves, and set to investing regularly

Get FI Portfolio

The Get FI Portfolio is a combination of index funds and Listed Investment Companies. They do all my thinking for me – I just sit back and watch the dividends pour in. I buy whenever the market is down, or if the LICs are trading at a discount, in line with my investment strategy. I don’t plan to ever sell my stocks (why kill the goose that lays the golden egg) however I am flexible – and am willing to use this liquid investment to my advantage. For example recently I sold off a large holding off Milton (ASX:MLT) shares to fund a deposit for an investment property (duplex).

ETFs

• Betashares Australian top 200 index fund (ASX:A200) MER = .07%
• Vanguard Australian shares top 300 (ASX:VAS) MER = .10%
• Vanguard Total US Market (ASX:VTS) MER =.04%
• Blackrock iShares S&P 500 ETF Total US market (ASX:IVV) MER = .04%
• Vanguard Total world ex US (VAS:VEU) MER = .09%

LICs

• Australian Foundation Investment Company (ASX:AFI) MER = .14%
• Milton investment corporation (ASX:MLT) MER = .12%
• Argo Investments (ASX:ARG) MER = .16%
• Brickworks investments (ASX:BKI) MER = .17%

Get started

So what are you waiting for? Get started today. There are a number tools you can use to begin tracking your net worth, ranging from expensive paid accounting solutions, right through to free online tools or even trusty old Microsoft Excel spreadsheets. The rest is up to you!

Get Financial Independence!