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Tracking your Net Worth

April 17, 2024
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FinMeUp
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FinMeUp

Tracking your worth = tracking your progress to financial freedom


Building wealth takes time. I believe that the true value of having wealth lies in the journey of creating wealth, not in the destination of having wealth. Tracking ones progress is essential for success - whether it be salary increases, 5km park run times, or how many books youve read. Improvement makes us feel good, and of course, builds confidence. This article will discuss perhaps the most important metric of all: Tracking your net worth.

Net worth is the value of all assets owned, minus the value of all liabilities owed. Assets are anything that you own that can be converted into cash. This includes property, shares, bonds, crypto, cash, and personal possessions. Liabilities represent obligations that must be settled in the future, consisting mainly of loans. 

Steps to calculate net worth: 
(Refer to the images attached)
 

1. List your assets and liabilities to calculate your net worth

Figure 1 represents the net worth of a well-diversified individual.

Assets include:
Apartment of R450 000, which still has a bond balance of R350 000
Easy Equities share portfolio of R120 000
Bonds to the value of R15 000
Bitcoin and Ethereum holdings in Luno of R42 000
R2 000 in a bank cheque account and R6000 in a savings account
Retirement annuity thats been building up for about 5 years
R2 500 loan granted to a friend
Vehicle and furniture to the value of R40 000

Liabilities include: 
Student loan balance of R40 000
Apartment loan with a balance of R350 000 (from original R450 000)

2. Assess your assets

Figure 2 represents the current asset allocation of the investor.

Are you diversified? Our sample investor is as diversified as one can be, having investments in every single asset class. Of course, one doesnt have to be invested in all of the asset classes, but diversification is essential for risk management purposes.

Should you adjust your weights? It is clear from figure 2 that this individual is overweight on property. It did, however, make sense for her to invest in an apartment, given the economic conditions and her personal financial situation at the time. I would suggest that she only invest in stocks and crypto for the next few years to create a more balanced portfolio.

3. Revisit every 6 months

Track, review and reassess every 6 months. This way you can keep your ideal portfolio weights given your unique financial circumstance and goals. Every cent of growth brings you one step closer to financial freedom. Keep investing, keep growing.


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