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Step 1 in Personal Finance – List Out All of Your Financial Accounts and Calculate Your Net Worth
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As part of my blogging goals for 2012-2013, one of the ongoing projects I’ve been working on since Thanksgiving has been writing a book called, 31 Days to a Financial Revolution – Automate Your Finances To Achieve Financial Success. As the name suggests, the book details a series of 31 approachable steps over a one month period that people can take to optimize their finances. Along each step of the way, 2-minute automation action items are implemented to increase the likelihood of the financial planning steps continue to be followed going forward.
At first, my goal was to just write a short 20-30 page eBook on one specific topic. However, when I started looking at all of the material I had already covered on my site (now at 804 posts total), I realized it was complete enough to tie together in to the form of a book.
From there, the question then became what would be the first step/day to get the financial revolution started! In thinking for a while about the first step that I would take to get my finances set up, the answer became abundantly clear. In fact, it was so clear and obvious, that I realized I had never even thought to actually write a post about it on my site, despite the extreme importance of the step.
The purpose of this post will be to correct this annoying little discrepancy and cover the first step that I think should be taken in personal finance – listing out all of your financial accounts and calculating your net worth!
Step 1 in Personal Finance – List Out All of Your Financial Accounts and Calculate Your Net Worth
Of course, this fear only causes them to get further behind on their finances. Why is is this? Simple – because in order to start getting your financial house in order to achieve financial freedom, the first essential step is to get a clear picture of where you are currently (i.e. where your financial mistakes or successes in the past have lead you to right now).
Not convinced yet? Let’s take an example of a fictional man named Mark.
In other words, in order to make continually informed decisions about your personal finances, you have to keep up with what your current position is!
So, how do you obtain this clear financial picture? Easy – it’s called a personal financial statement. Wait a second, aren’t financial statements complex? Not really, but just to make things easier, let’s call this a personal net worth calculation.
How do You Calculate Your Personal Net Worth?
In short, your personal net worth is equal to your solvent assets (investments, cash accounts, etc) minus your liabilities (debts). So, in order to perform this calculation, you have to keep a running list of all of your accounts and their corresponding balances.
Depending on personal preference, this listing of financial accounts can be done manually in an Excel (or equivalent) spreadsheet or automatically through free or commercially available personal finance software.
- Personally, I prefer to handle this process manually using a Google Docs spreadsheet. Google Doc spreadsheets are super easy to use, handle just like a regular Excel spreadsheet, and are automatically stored/backed-up online, enabling my information to be protected from computer crashes and also accessible from any computer in the world with an Internet connection.
- If you’re interested in automating this process with personal finance software, there are now many great options available. Some of the ones I’ve tried and like are Mint (free), Manilla (free), SaveUp (free), Personal Capital (free), and Quicken Home ($). The only reason I don’t use this type of software is because some of the banks I have my money stored in are not listed in the directories of this software.
Regardless of whether you decide to handle this tracking manually on a spreadsheet or automatically with one of the personal finance software alternatives listed above, the overall process flow is the same:
Step 1 – List out all of your accounts (and corresponding balances) containing your “marketable” financial assets. Shown below are some examples of the types of accounts that should be included in your list:
Got all of them listed out? Good. Now, add up all of the balances.
Step 2 – List out all of your accounts (and corresponding balances) containing your loans/liabilities (debts). Shown below are some examples of the types of accounts that should be included in your list:
- Credit cards
- Personal loans
- Boat loans
- Car loans
- Furniture loans
- Student loans
- Or anywhere else that you owe money
After getting all of these listed, add up all of the balances and subtract the total from your asset total to calculate your net worth.
Now, if you’re like me, you easily forget things like this because your life is pretty hectic with many different commitments. Because of this, you need to complete the following 2-Minute Automation Action Item to maintain visibility.
2-Minute Automation Action Item – Place automatic monthly reminder on Gmail or Outlook calendar to update your net worth listing as your account balances change.
How about you all? Do perform a similar tracking exercise of your financial position/net worth on a routine basis? If so, how often? Do you do this manually or use a type of personal finance software?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/59937401@N07/5856725357/sizes/l/in/photostream/
About the Author Jacob A Irwin
Hi folks! My name is Jacob. I am the owner and operator of My Personal Finance Journey. I started this blog in January of 2010 and have enjoyed the journey ever since. Since finishing up graduate school in Virginia in 2014, I have been working in biopharmaceutical development in Colorado. You can read more about me and this site here. Please contact me if you have any questions!
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I used to be always afraid to do this and suffered from like you said, 'too much shame to face the music and gain a concrete vision of their financial position.' I can't recommend doing this as soon as possible because it will give you a far better financial foothold in getting control of your personal finances. The hard part for me is finding the value of my web business as it's quite volatile out there.
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Thanks for sharing Fred!
My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education
Awesome post! I totally agree with your observation! When people are in a financial constraint they tend to be ashamed or afraid to face the music, and in my opinion something that we need to do in order to work out the problem/s–more than anyone else, we need to be honest to ourselves.
I make it a point to list all my accounts to better take note of what I need to work on, to maintain, and eliminate from my monthly earning and spending.
My recent post Student Credit Cards – What to Look for When You Apply
I update an excel spreadsheet once a month. Having a three currency net worth it is a bit complicated to use a software and Mint wouldn't have all of my accounts. I don't track expenses much, unless the net worth figure stagnates.
My recent post 13 money resolutions for 2013: #6 crush your debt!
Thanks for sharing Pauline. I would like to use Mint as well, but like you said, my stuff is too complicated to “fit” in Mint, so the spreadsheet approach works best for me.
My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education
I normally do this every month, list all my incomings and money which is actually 'mine', e.g. savings, then take away all the debt I owe. The more honest I am, the more it makes me re-think how I manage my finances and improvements I could make. Good luck with the book, let me know if you need any more opinions or anything.
My recent post How to save money when booking your holiday
Thanks so much Thomas!
My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education
Great post. Listing out all of my accounts was the only reason I realized that I had accumulated so much credit card debt. After that, I was able to put myself on a plan. Great tip!
My recent post Should You Consolidate Credit Card Debt?
Thanks for sharing Grayson. As I mentioned above, a lot of people have a hard time “facing” the numbers of their debt levels, and listing things out does a world of good to get on the right track to reducing those balances!
My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education