Using Net Worth as a Psychological Carrot

I like keeping score.

Keeping score is an easy way for me to know how well I’m doing. It lets me judge, in a very clear way, whether I’m improving and whether I’m making forward progress towards my goals.

For a long time, I was obsessed with keeping score in various aspects of my life against other people. I’d keep score with the various gadgets we had. I’d keep score with who had the best trading card collections. I’d keep score with who had the best-stocked liquor cabinet.

What I found, though, is that keeping score against other people in such ways left me feeling empty. Every day – every hour, even – there was another way to keep score against someone else, and I could never win all the battles or even most of them. Even worse, when I would lay my head on my pillow at night, it was just me. There was no one to keep score against, and even if I had a higher “score” in some aspect of life than others, most of the time I was left unfulfilled by that.

Over time, I began to find a lot of power in keeping my own score.

Net Worth

The primary way I “keep my own score” is by calculating my net worth quite frequently. I use my net worth as a score to judge whether or not I’m making successful, smart moves towards improving my personal finance state. I “win” if my net worth goes up. I “win big” if my net worth goes up by some specific amount each month.

Calculating your net worth is quite easy. Simply make a list of all of your debts and another list of all of your assets. Add up your assets, add up your debts, then subtract your debts from your assets. The resulting number is your net worth.

I calculate my net worth each month. I use a simple spreadsheet to do this – here’s how you can build one exactly like it.

Using Net Worth to “Keep Score”

Each month, when I calculate my net worth, I “keep score” in three different ways.

1. I compare my net worth to the previous month’s net worth

Obviously, I strive to have this go up each month, but during months where there are car repairs and other issues, it doesn’t. If I don’t see a decent increase from month to month – and having calculated this many times, I know what to expect – I’ll start digging for “why” this didn’t happen in order to improve my game.

2. I compare my net worth to my net worth one year ago

This must be an increase – and hopefully, a sizeable one. I do this mostly to help me realize how far I’ve come over the past year, as it’s often an amazing reminder (particularly when compared to annual income) how our hard work is paying off.

3. I look at the goals I set at the end of last month

Each month, I set goals for the coming month. Usually, these are “thirty day projects” of some kind, where I’m trying to teach myself a new normal behavior or two. One month, it might be minimizing our grocery bills to teach myself how to get the nutritious foods we need for less. Another month, I might go without spending a single dollar on entertainment. At the end of the month, I’ll reflect on how the goal went and see how it impacted my net worth – it’s usually a positive impact. Even better, I’ve usually picked up a good behavior or two by doing things this way.

Obviously, I also set goals for the next month. I usually pick a “target number” to shoot for – think of it as trying to beat one’s high score at an arcade game. I also usually define a “thirty day project” of some sort – sometimes two – to help me master a good behavior or two that will reflect well on my financial state.

During the month, if I feel like I’m on the verge of making mistakes, I’ll often calculate my net worth just as a quick reminder. It’s much like playing a game and glancing up at the score at the top of the screen – a quick reminder of how well you’re doing and a bit of a push to keep up the good work.

In a nutshell, keeping score is a key part of how I keep my personal finance in balance. It keeps me motivated and focused without causing me to “compete” in areas that are detrimental to my overall goals (like getting into “gadget wars” with friends).

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