Updated on 09.19.14

Using Net Worth as a Psychological Carrot

Trent Hamm

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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  1. Daniel says:

    If you have a budget you are comfortable with, why set specific net worth amounts as goals?

    If you stay within your budget, you are doing well enough and your net worth will increase without wasting your time looking at it. If you have higher expenses than you expect, that’s when it’s time to take a closer look.

    Why use net worth as your scorecard instead of your monthly budget?

  2. Johanna says:

    I’d be interested in your thoughts on how (or whether) this technique can work once your net worth becomes sufficiently large and positive that short-term fluctuations in the stock market overwhelm your own day-to-day efforts. How can you set a goal for something that’s beyond your control?

  3. Jared says:

    I echo Johanna’s thoughts (comment #2). A large portion of my net worth is in investments, meaning that I can contribute 20% of my salary to retirement, extra money into a savings account, etc. and still have those positive net worth factors overshadowed by a dip in the stock market. I think that many people’s networth took a year-over-year dive when you compare 2009 net worths to 2008 net worths, for example.

  4. Studenomist says:

    I have tried this net worth approach and I find it really gives me a clear picture of my true financial situation. I have tried to keep track of my income but then I realized that was was not sufficient. Keeping track of your net work shows how you are optimizing your spending so that you keep as much as possible of what you earn.

    I especially try to challenge myself during the summer months. I find that this is the point where college students spend lots of money. One thing that keeps me in check is taking a summer school course. Having assignments and exams to deal with allows me to stay in more often and reduce my expenses.

  5. cv says:

    My first thought was the same as Johanna’s, above. I’m 28, so my retirement account is invested in long-range investments that change day to day, and especially month to month. There must be some useful measure that can accomplish the same thing without the fluctuations – net in cash accounts? Income minus expenses over time?

  6. I’m curious about your goal of traveling to Europe. You calculate your net worth every month but what are you doing to plan for that trip? Is there a specific goal you are trying to reach before making the trip?

    I know it sounds irresponsible to say “Just do it!” but at some point you will have to take action and get out of the planning phase in order to make the trip a reality.

    Is it a question of “feeling guilty” for spending money for something so extravagent? I’m really curious about your thought process on this aspect of your life. You spend so much time talking about frugality and simplicity but what about your other goals?

  7. Kevin says:

    I know it’s none of my business – but the payoff to this article would have been your net worth. Judging from the tremendous success of your blog I’m guessing 7 figures. Yes, I’m jealous, but I’m still happy for you.

  8. chacha1 says:

    My score card is entirely based on whether I met the targets on my spending plan. Because my net worth is so teeny it’s barely worth thinking about. :-) Sticking to my plan will, eventually, give me something that IS worth thinking about. I doubt I will ever tie it to macro-economic factors, though.

    I do dig the thirty-day projects. I’m making a note about that right now … .

  9. George says:

    I quit measuring net worth in taxable accounts and started tracking income from investments. First goal is to get the equivalent of a minimum wage salary from the investments!

  10. Kevin M says:

    I’d also like to know if you track the value of your portfolio and the ups and downs of the market?

    @Kevin (the other one) – Trent said a few months ago his net worth went negative since he quit counting his house as an asset. I believe his goal at that time was to get it back into the black without his house added in, but with the mortgage deducted. Correct me if I’m wrong, Trent.

  11. Kevin says:

    @Kevin M – you know more than me. I was only speculating. I hope I’m right for Trent’s sake. Of course I could be wrong – I really don’t know.

  12. Gabriel says:

    This is exactly what I do. I know this sounds pretty lame, but I’ve actually come to look forward to getting my bank statement at the end of the month. I love seeing how much I have left over from bills to “sock away” and earn interest somewhere. It’s a fun and powerful feeling, and then I get to move on with my life rather than fretting every time a bill comes in.

  13. Alex says:

    Trent used to post his networth figures as percentage improvements versus the previous month (which avoided disclosing actual dollar figures) but stopped, I’m guessing b/c such percentage figures are pretty useless.

    Seeing as his name and identity are not anonymous, I can’t say as I blame Trent for not disclosing his networth. Most people (including myself) like to look at pf bloggers’ net worth purely for competitive reasons, and I think Trent justifiably doesn’t feel the need to foster that.

  14. karyn says:

    You can tell you’re into baseball and stats, LOL!

  15. I also track net worth each month as a means of keeping motivated and keeping track of progress towards my target retirement number. Since fluctuations in the values of investments and exchange rates usually have a greater effect than savings, I track my savings each month separately since that is something I do have greater control over.

    The question of whether an owner occupied home should be included in net worth calculations or not gets raised by various bloggers from time to time. I have yet to see a credible reason for not including it – at the end of the day it is an asset, it has value and that value can be realised.

    Regarding disclosing net worth, I suspect you will find that most people (whose family name is not “Trump”) with a meaningful net worth would prefer not to have their personal finances disclosed to the public. The only exception I can think of is Adrian at 7million7years. I have no intention of ever putting my net worth numbers on public display.

  16. Amy says:

    I just let Mint tell me my net worth.

  17. Ken says:

    I have done this but it’s been 5 months or so. I need to pull that spreadsheet back up. I agree that we need goals and need to see results regularly.

  18. I agree. Keeping score against others is not productive. Keeping score against yourself, maybe.

    I tend to lean more towards goal-setting than actual score keeping. If I were to keep score, I think it would be done more on a quarterly basis than any shorter period of time.

    I tend to do my “score-keeping” around tax tine each year.

    I look at my savings and I loook at my investment portfolio, just to see how I rack up over the previous year.

  19. More great work Trent… but are you reading my mail?? I wrote a very similar article on Net Worth recently. Ha, I’m just happy to be sharing thoughts with you. I respect your work and what you’ve built. You’re the model Trent… keep it up!


  20. Andy says:

    I have been tracking my net worth for the past 15 months on networthiq.com

    It breaks down your assets into categories such as cash, stocks, bonds, retirement accounts, house, cars, etc. It also breaks down your debts. You can ‘keep score’ with people that are similar to you (education, age, location, income, etc.)

  21. Ryan says:

    I use networthiq as well as my personal Microsoft Money file.

    I assume that networthiq isn’t REALLY a good way to compare against others though, since most likely on the financially literate or above-average are using it.

  22. tammy says:

    Monetary net worth is a fine thing to score
    But don’t forget the finer points of life
    Health, family, friends, blessings.
    I always love your posts but encourage you to remember the delicate features of life that make it truly worth while!

  23. This is an excellent idea, even if tracking is less than perfect.

    Having worked in finance/accounting for many years, I knew people who had substantial net worth, but because they didn’t know it, they continued to think and live like poor people. They just worked on their widgets, largely oblivious to what they accumulated.

    Some would think this way to the extent that they resented “rich people”, completely unaware that they were among them.

    Can you imagine people being miserable for lack of money while have high six and seven figure bankrolls?

    If you can’t at least savor the freedom that money can buy, what’s the point of having it?

    Worse would be having a negative net and not knowing it. Ignorance may be bliss, but that kind of ingorance has a way of catching up in a nasty way!

  24. Matt says:

    What do you do about your home? Other properties, say a home you had before your new one that you can’t sell because of the market? Do you consider your mortgage remainder as part of your debt? Or only “investment” properties? Would you consider any asset to these properties, like appraised values or anything?
    Or would you just leave out mortgages altogether?

  25. Hank says:

    I think tracking net worth is a great idea. But, on a monthly basis, I get too wrapped up into it. It leads me down the road of watching what the stock market is doing every day, etc. For me, it works better if I track my net worth quarterly.

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