I have been tracking my net wealth since 2004 (annual snapshots) and started to track it more closely (monthly) in 2012.
When I first started, it was extremely simple, my wife and I had one bank account and some school debt. Basically we could just look at the bank account balance and that was it, not too exciting.
However, over the years it became more complex; a few bank accounts (including foreign bank accounts in different currency), 401k(s), IRA(s), taxable investment accounts (index funds and equities), properties, mortgages, etc. Once the amounts started to become significant, I began tracking it monthly.
Here are some of the things I have learned.
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Exponential growth is all relative, but I really started noticing it after ten years. Our investments were starting to bring in a significant amount in relation to our work incomes. Now it is like we have another employee or employees in our family, and every month they bring in more.
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The delta from one month to the next, it keeps getting bigger over time. Some months are better than others, it all averages out.
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My forecasts have been fairly accurate. If I expect to have $X in five years, I have only been off by a few months. This has helped in planning for down payments for property or buying vehicles in cash.
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Highlights the benefit of paying off debt. Debt acts like a weight, slowing growth (paying interest vs. getting interest). Some debt is ok, but unless the item loaned is returning a profit (like a rental property), you are paying for the privilege to be in debt by slowing your growth. I know this can be debated.
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Puts your monthly budget into perspective. It shows how my monthly expenses are directly connected to my savings rate. Higher savings rate = quicker net wealth growth.
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Identifies basic asset allocation. %Cash, %Retirement, %Taxable Investments, %Real Estate, etc. It shows if I am too heavy or light in areas and how it has changed over time. For example, when we were younger, a large part of our assets were cash. Now I do not want to carry more than 5% cash.
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Assists in "What if" scenarios. "What if" we rented and continued investing in index funds or we bought and quickly paid down a mortgage?
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Helps maintain a focus on longterm goals. I can see on my net wealth tracker (spreadsheet I made) our trajectory, we are tracking to have $X when we retire. There is a known point where we will have plenty to retire and never have to work again.
Not sure if this will help anyone else out but I wish everyone the best on there own journey.
Submitted June 17, 2017 at 10:50AM by kphred http://ift.tt/2tyZyvV
