Rule #7: Watch Your Progress – But Make It Fun.

14 money rulesA reader asked me if I could break down my ideas into a handful of principles. After some careful thought, I came up with a list of fourteen basic “rules” that summarize my money and life philosophy. I’ll be presenting these as a weekly series.

One of the first things I did when I started turning my financial situation around is to start keeping track of my net worth over time. Each week (and later each month), I calculated the value of all of my assets, all of my debts, and the difference between the two (my net worth).

Later, when I began to try to improve my physical shape, I started keeping careful track of several metrics: my weight, my resting heartbeat, and the number of miles I was walking and jogging. Even more powerful, I started sharing my walking and running data via the Nike+ website, allowing me to compare my progress with others.

I like to call it the “keeping score” effect. Almost always, it becomes more fun to work towards a difficult goal if you have some sort of method of comparing your progress to the progress of others, or comparing your current state with your state in the past. You can see the improvement clearly – when you look and see that your net worth is up $10,000 compared to last year or you see your average mile is more than a minute faster than it was a couple months ago, it feels enormous. It’s a giant rush.

The entire point here is to keep yourself motivated towards your goals. Keeping score keeps your big goals front and center in your mind. Combining that with a visual reminder of your goal can be particularly powerful, as it keeps your goal front and center in your mind and also demonstrate your progress clearly.

There are countless tools out there to help you keep track of your personal finance progress. I tend to lean towards tools like Wesabe or Open Office or Quicken, which allow you to preserve the security of your account information but require a bit more work. On the other hand, you have tools like Mint, which gathers the information for you but requires you to share all of your account information with one site (which really concerns me from a personal security standpoint, regardless of what Mint’s privacy policy says).

I find it worthwhile to carefully track my progress in four areas:

Track your assets. For me, I only include the assessed value of my home plus the balances of any investment accounts and savings accounts I have. In a normal month, I expect this amount to move up slowly over the previous month, meaning I’m actually saving money. Some months see a precipitous drop, though – for example, if I buy a car, that’s usually a pretty big money hit, since I don’t include my car as part of my assets since they depreciate so much.

Track your debts. This is key if you’re trying to plow your way through a a debt repayment plan. Each month, you record the balance of each debt, then add them up. If you’re actually pushing well on that debt repayment plan, the total balance of your debts should significantly drop each month. If you don’t see your debt dropping, you need to take a serious look at what’s going on.

Track your net worth. This one’s simple – just add up your assets and subtract all of your debts from the total. Obviously, each month, you want your net worth to be higher than the previous month. I like to make a note of the difference from month to month and I strive to increase this difference each month.

Track your spending. Whenever you spend, jot it down. Keep track of all of it and, at the end of the month, add it up. Even more important, divide that spending into categories – utilities, necessary food, eating out, entertainment, books – and total up each category. This technique is powerful because it shows you the areas where your spending is out of control and you need to tighten up.

As I mentioned earlier, when you keep track of your progress in this way, it becomes a huge aid for setting goals. Here are three ways I have used the above data to set short term goals for myself, pushing me to new heights:

I want my net worth growth to be better this month than last. Let’s say my net worth goes up $1,000 from June to July. I then want my net worth growth from July to August to be $1,001 or more. Obviously, I can’t control the growth of the stock market, but I can control my spending impulses.

I want to cut my spending in this specific category by 50% next month. If I notice that I spent more than I thought in a certain area last month – like books, for example, or on eating out – I set a goal for the next month to reduce my spending in that category by a decisive amount without jacking up my spending elsewhere.

I want my debt to drop more this month than last month. Doing this works hand in hand with my net worth goal, but in a slightly more specific way. I’ll push hard to find a few extra dollars that month to roll into a debt payment.

I’ve also found that the social aspect of such tracking and goal setting is powerful. If you like to do this online, Wesabe is an incredibly interesting and powerful tool for sharing your information and comparing it to the progress of others. You can offer encouragement to others, let them encourage you, and push towards goals together.

I’m highly partial to doing this offline, though. Find a personal finance buddy and meet together regularly to encourage each other, share your progress and your challenges, and offer useful tips to each other. For me, the reality of meeting someone face to face makes such progress tracking more real – and it also adds a stronger edge of competitiveness to the mix.

In the end, keeping track of your personal finance progress is key. It shows you quite clearly where you’ve been, how far you’ve come, and where you need to go. It helps you see the areas where you’re successful – and points out the areas where you need more work. It constantly pushes you forward to bigger and better things.

In the end, watching your steps helps you follow that trail straight to your dreams, whether it’s a financial dream or a dream in any aspect of your life.

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  1. I feel that tracking your progress is really important. However, there does come a point when market fluctuations dwarf your weekly, monthly, yearly contributions/efforts to increase your net worth.

    For example, last year the market tanked so my investments/net worth took a hit even though I saved and invested 25% of my income. I think you always just have to keep chugging along no matter what your net worth is doing.

    -Gen Y Investor

  2. JonFrance says:

    I agree with the both the article and the first comment: metrics can be good, but they need to be chosen and handled carefully.

    With weight, for example, it can be discouraging to weigh yourself every day, since progress isn’t always linear at that frequency. But another metric, like minutes of exercise or distance run, almost always gives a sense of achievement. Then stepping on the scale weekly or monthly can reinforce this.

    In the same vein with money, finding metrics that are linked to positive effort on my part, like money put into savings in a month, feels better to me than ones like net worth that can fluctuate even when I’m being “good”.

  3. I think it’s valuable as long as it’s done with perspective. If you’re measuring every week, you’re going to have bad weeks and that can be discouraging.

    The perspective comes from taking the long term view, comparing your progress to where you were six months or a year ago. You don’t want a string of weekly failures causing you to abandon your long term goal.

  4. KC says:

    When I was digging out of debt I checked it almost every other day. It motivated me to look for extra money to pay down my loans. Now I’m investing and I track my gains and losses daily. I know people say not to do that, but I find it interesting. There are factors that influence the market daily and its interesting to see how your portfolio responds to certain factors. There can be up days on the market, but everything you own goes down (or a down day and everything goes up) – it gives your signals that maybe you should diversify some cause you are too tied to oil or retail or some other factor.

  5. Debbie M says:

    One way I deal with tracking things that are not completely in my control is to include notes. When tracking my net worth, each month is on a new line and the line also includes a place for notes like “stock market plummeted” or “new property valuation.”

    I also track my utilities bills and usage and have notes like “very hot month,” “another crazy hot month,” “on vacation one week,” and “rate increase.”

    For debts you could note extra payments and changes in interest rates and minimum payment percentage.

    With weight, it’s not so easy, but you can still have notes like “3 work parties,” “sick,” and “too hot to run.”

    After a while, these notes may even give you ideas on how to make improvements. Having “heat” for an excuse means maybe I should find more ways to exercise in the heat (weights at home, mall walking, swimming) and I think we’re going to get a window AC so we don’t have to use the central AC at night. I also made (slight) changes to my philosophy on eating at work parties.

  6. Craig says:

    I agree, watching you funds grow or debt being reduced is fun, make it a game of sorts because the motivation and fun helps you want to do more.

  7. E.D. says:

    I agree that tracking is important to keep motivated. DH and I passed a great milestone last month – $300k net worth. Soon we should pass another important point – being back above water on our aggregate retirement accounts.

  8. Pizpo says:

    You may want to add a food log to your list. Tracking every calorie is a little bit of a hassle but definitely worth it. After all what good is a financially secure future if you are in poor health? You can track your weight loss exactly as you track your net worth. Every day that you consume less calories than you burn, you “bank” the deficit. When you reach 3,600, that is one pound of fat, hurray!

  9. One of the KEY principles for me is that “Progress is Happiness.” Think about it as it makes absolute sense no matter what your financial background is.

    Rgds, RB

  10. Tyler says:

    I’ve found a dramatic improvement in our finances since we have started to track them. As far as tracking our net worth, I only focus on the inputs and not the market fluctuations. This makes things comparable and keeps my focus on where it needs to be at this stage in my life, socking away the loot.
    Someday, when I’ve got enough to make it worth my while, I’ll switch my emphasis to return on investment. I hope Bill Gates and Warren Buffet are looking over their shoulders, ’cause I’m coming up!

  11. tjwriter says:

    I’ve been keeping an eagle eye on my checking account, and it seems to be reigning in my spending. It’s a good starting point for me. I should be doing more, but I really should have started sooner.

    Also, your marinade post was a lifesaver for me. Last weekend, I went to get a roast from the little freezer we keep meat in only to find that it had stopped working and all of the meat was thawed, but still refrigerator cold. I had just filled the freezer the last weekend, including a whole ribeye. (Great deal, btw. Local grocery has a sale every couple of months. One rib for $60 made 23 largish steaks. We get about two meals from every 2-3 steaks.)

    After some discussion with my mom, I put the newest meat into our other freezer and decided I would cook and then freeze the older stuff. Having that list of various flavors right there was a godsend. I mixed up six batches of marinade (5 of yours, 1 of ours) and my husband grilled meat.

    Before adding the meat to the marinades, I set aside half of the mixture and we put the meat into it after cooking. Most of meat was deer and it can get dry easily.

    My husband was a grilling fool, and my father was kind enough to come get some pork and deer, which he smoked for us. We managed not to waste the food, which was my biggest concern.

  12. kitty says:

    Just wanted to second first poster – if you have a decent amount of investments, than the fluctuations on the market would easyly mean more than anything you can save.

    Like last year: At the worst point, my net worth took a hit exceeding my yearly gross. Obviously, there is no way I can save over 100% of my paycheck…

    Striving to increase the net worth every month only makes sense for people with low net worth or high debts. At some point, market fluctuation matter more. If you have, for example, 300K in a market, and you can easily gain/lose $3000 or more in a day. Depending on your salary, even 50% of your net after taxes may not cover it. The only way then to achieve this constant growth is trade, and this is risky.

    I admit I started tracking my net worth a couple of years ago. But I do it mostly for fun… “Am I an accredited investor today?”. Kind of silly.

    Seriously though, it doesn’t make much sense to me unless you are at a point in which your net worth depends largely on your saving rate/debt repayment. Once you are at a point when your net worth fluctuations are determined by the market, it’s all on paper. Does it matter if you have $X on paper today if by the time you sell it this value is less or more? The only two values that are matter is when you buy and when you sell, not those in-between. Now, I am not saying you shouldn’t track your investment – you should, but for the reason of re-balancing, selling/buying, etc. Not for the reason of “how much I am worth today on paper”. No to mention that some chunk of this money will belong to Uncle Sam.

  13. Progress is happiness, that’s one of my mantras for happiness. The great thing about personal finance is that once you have the template in place, it’s just a matter of time when you will be set free whether it’s 40 years old as in my goal, or 65!

    Have a great weekend!

  14. David says:

    My thoughts on tracking your spending and monitoring your progress are this. Now that I am completely out of debt and on my way to where I want to be, I watch everything that I can like a hawk. All of it. And of course, when I was in the process of digging myself out of debt, I looked at my progress. The funny thing was though it was almost like I did not want to look at my progress too closely, because there was some underlying fear inside of me that if it looked like I was progressing too much or too well, that I might be tempted to stop and regress back to my old ways of spedning.

    So, of course, when the credit card statements came in the mail I watched the declining balances, but I guess I would compare it to looking at the sun– I didn’t want to look at them for too long.

    I briefly glanced at my progress during this time and then got rid of them and got my mind back on the matter at hand–working hard to get myself out of debt.

    Just my two cents on the subject–a great article overall.

  15. Ann McD says:

    People can argue the “pay off the smallest debt first vs pay off the highest interest debt first” scenerios all they want. For me, it didn’t matter if I got rid of a $50 debt or a $1000 debt- I just got rid of a debt! That was a huge motivator for me and reinforced further positve, frugal behaviors. Now that we have moved from spending to saving (everything paid off but the house), I like to go to my ING savings occasionally just to look at how much interest I’ve accumulated. I’m glad that little things make me happy.

  16. Harry Che says:

    Thanks Trent. I enjoy this post. It’s very important to keep track of progress on your goals.

    I’d like to recommand a goal tracking tool at http://www.GoalsOnTrack.com, a very nicely built web app designed for tracking goals and todo lists, and supports time tracking too. It’s clear, focused, easy to navigate, worth a try.

  17. Dean says:

    If you’re tracking weight, then track it every day but don’t consider that days weight as your actual weight as it can vary up or down a pound or two (particularly for females), use the average of the last seven days or so

  18. Brittany says:

    Instead of tracking weight, which can fluctuate/be tiny daily, track things you directly and immediately affect–such as how long you exercised every day.

    I agree completely with making it fun, though–for my senior thesis, my suitemate and I made a giant chart (like a kid’s chore chart) that said: “How long did you work on Honors today?” where were wrote how long we worked on it each day. Then, if we met our goal for the end of the week, she started putting a sticker on the chart! It was absolutely ridiculous, but it worked (the social pressure helped too). Perhaps I need a “How much of your student loan have toy paid off today?” sticker now.

  19. So true — Most always need to feel challenged to get anywhere, otherwise it’s just not fun. For my money, hitting the next savings “milestone” always helps, though mine are usually in small amounts. I don’t have a ton of money to save, but saving what I do allows me to hit my goals and feel like I’m getting somewhere! I also have a goal set for where I want my car loan to be at the end of the year, which should be achievable and ensure I’m on track to have it paid off in a year.

    I also do this with my hobby, my cars. I take massive amounts of pictures and celebrate each new part, no matter how small. On the days/weeks/months where I seem to make no progress, I look back and see just how far I’ve come already. That usually cheers me up and re-motivates me when I need it! (Works for money, too. If you’re saving or paying off debt and seem to have a setback, look at the progress you’ve made thus far and remind yourself that, even if one month isn’t great, you’re in a better position for coming as far as you have in the first place.)

  20. Dean Soto says:

    This post couldn’t have come at a better time. My wife and I have been having trouble sticking to our budget. I get impatient when I see that our debt still has a while before it is all paid. Contrasting before and after, and making it visual is a GREAT idea and will help us out a lot.

    Thanks!

  21. Matt says:

    I loved this post. I’ve started tracking my net worth monthly and it really helps us to make better money decisions and it is fun to see the net worth grow quickly.

  22. Sharyn says:

    Thank you so much for the net worth tracking suggestion. We have only tracked July and August now, but there is a big percentage gain (woo hoo!) because our net worth is so low and we are paying off decent chunks of our debts. This is exactly the kind of tool that will help keep us motivated. Good timing too…our retirement accounts went up this month for the first time in a while.

  23. Shaun says:

    Sounds great, some times we need to chart things down to make sure we are on the right path.

    Plus it always makes it more entertaining to try to beat your “high score” from last month.

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