Many people, including smart PhDs and policymakers seem to think that incomes are the same thing as wealth.

This is really a shame because overall wealth really is best defined via net worth. Also, I don’t necessarily agree with Duanes comment (above), calculating your net worth can help you to meet monthly goals or to help you update any long term picture you have of your wealth.

Best,

James

This is actually all the more reason to continue to track it, but for different reasons. Early in one’s investing career the Net Worth calculation keeps you honest on short intervals. Later on it helps you monitor investment performance and you can safely assume the habits of frugality have become natural.

I sense you’re not asking for tips on how to spend truly discretionary income but are seeking the optimal balance between saving and spending it all. Trouble is, there is no correct answer. It all depends on the individual. You need to figure out for yourself where you’d be most comfortable between the two extremes of save-it-all and spend-it-all. I don’t recommend either. IMO, it’s best to be somewhere in the middle and I lean a little towards the saving side because life is unpredictable; what’s here today can easily vanish by tomorrow.

Here are some tips you never asked for : Give some of it to charity and you won’t regret it (the orgs involved in feeding the hungry are in difficulty now). Help a family member in need. If you don’t have it now, consider buying long term care insurance (inexpensive when you’re younger). Consider saving a bit more now beyond just “meeting your retirement savings” for an earlier retirement.

No matter what you do, try to avoid irresponsible spending. Your income represents hours of work in a younger period of your life that you’ll never re-live again (some planners call it your life force that you’ve exchanged for your income). Precious stuff; don’t waste it.

I think you’d be way happier in the long run if you saved and gave judiciously, and never spent irresponsibly.

This article and subsequent discussion are all very interesting, especially the posts bringing up the Dave Ramsey point of view and its hindrances to educational investments. Just remember that Dave Ramsey was badly burned by excessive indebtedness, and lost everything he had – millions! In this over-leveraged economy, his financial conservatism is a “gospel” that needs to be spread. However, if you are young, an investment in career education will pay off in the end, especially if you make eradicating that student loan debt a high priority after college. Dave’s advice to work part time while going through school is also wise, to minimize borrowing. (I’m in my 50’s, so I’m debating whether I can recover the costs of some needed classes & certifications to advance in my career.)

I too have been tracking our finances in Quicken for the past 3 months. (I had a lax period of 3 years where I ignored everything, because of family, medical, and career crices, to our financial detriment.) I actually transfer our month-end Net Worth figures to an Excel spreadsheet to track our comparative Net Worth. We are on a campaign to get out of debt. Unfortunately, although we’ve made many financial improvements and payed down debt in the past 3 months, our losses in our 401(k)’s have offset our other gains! I don’t even want to know how much our home may have dropped in value. (No real estate is moving around here in NC.)

I find the Quicken Deluxe budget tool to be frustrating. Am I alone in my frustration? My Quicken budget gives misleading results, because it doesn’t show the principal paid on debt, which must come out of income. (Because of this design flaw, it makes it look as if you have more money to allocate than you really do.) I finally just did an Excel two biweekly “payday” budget and attached it to my checkbook. I know now how much I need to have in the bank at the end of payday #1, to be able to pay all the large bills that hit after payday #2.

I also find the Quicken Deluxe investments impossible to update accurately. I finally just gave up and I change the numbers on my Excel spreadsheet.

I’d love to hear from some Quicken experts. Do I need to upgrade to Quicken Premier to overcome this problem with tracking 401(k) balances and stocks? You can e-mail me at Claudette1872@yahoo.com.

Some will say that the net amount to be saved per month will be a function of how much we earn and how much we spend. So it would be better to use the earnings and spendings as targets.

I suppose each of us would have to figure out the best fit for us, and the less the better.

We use net worth as our metric. But have recently done a spending budget to help us align ourselves better.

Regards

Once you’re out of debt, you should also be budgeting for those things you know you’ll need and use in the future. That beater car your driving will likely need to be replaced in a few years, why not get a nicer used vehicle, or even a decent new one if you have the savings and can pay in cash? Perhaps you’ve always wanted to see Europe, save for it and go (hey, the dollar might be stronger in a year or two). Take your mother on a cruise if it’s something both of you have always dreamed of and it’s within your vacation budget.

The point is to have defined goals and save for them. If you’re swimming in debt, other people are defining the bulk of your financial goals for you because you owe them. Once you’re out of debt, you have more freedom to define your own goals and that is what you really want.

Instead of focusing on net worth, it might be wise to have several sub-goals — decreasing mortgage debt, increasing cash (minus consumer debt), increasing retirement savings. This way, even if the old 401k goes up, there isn’t that temptation to spend cash.

Or, like me, if your 401k and house value goes down, but my cash is up, I know I’m okay.

This can start to affect your overall outlook down the road if you aren’t careful.

My point is that many of the things you will do to grow as a person and with respect to your long term finances will likely have a negative affect on your networth in the short term. Just don’t get wrapped around the axle about it.

While this article presents an interesting way of looking at networth, I still feel the best use of networth is checking if you’re better off today than you were a year ago, both in general and in specific categories (e.g. retirement, savings, property values, etc.).

If you have a negative net worth I think he covers that one TSD somewhere as well, it’s a slightly different calculation. I just finished my first quarter net worth change and it was fun to do and see.

Exciting stuff.

We had lost focus of the “big picture” and this is exactly what looking at your finances from a net worth prospetive does. As long as you do something positive for you finances your net worth will improve.

It helped me to see a “gain” even as we were paying off those stupid credit card balances, car notes, and student loans.

It’s definitely better than not doing any tracking at all, though!

Only reason I noticed was that I wondered how much it would take per month to burn what remains of my mortgage ($80,000) in five years, and came up with the same figure of 1333.34. So you inspired me!

Cheers,
KAD