Calculating my net worth is now part of my monthly routine.
So here I am!
Welcome August! Time to run the numbers and find out how much is my net worth in July 2019.
I’ve decided to calculate my net worth and to start tracking it on a monthly basis as I already do with other personal finance indicators.
On a very simplistic view:
Net Worth = Assets-Liabilities
Assets are what we own such as a residence or money and liabilities are what we owe, generally debt.
Why is it important to track?
Well, in one value we can say a lot about our financial life. It also helps to visualize progress towards financial goals.
As time goes by, our net worth will vary and it should allow us to map how rich or poor we actually are. Remember that looking rich does not necessarily mean being rich. Having a big house or driving an expensive car means we are most likely falling into the trap of lifestyle inflation.
If we owe too much and if we are not able to pay for it anymore, we would be left with nothing. So be aware!
Ideally, we do not want to carry too much debt, unless that is somehow part of our investment strategy. If yes, then stick to it but be conscient of the risks.
What comes in should always be higher than what goes out. This creates the magic positive cash flow.
So I have listed what I own (and what I consider to be relevant):
- Real Estate
I exclude minor values such as computers, guitars, smartphones, furniture, etc (due to the low impact these represent on my portfolio). If these are assets or not it is another story!
So adding up what is impactful, taking the current market value of my real estate, and current savings/investments I would end up with 670,156.29€
There was a small decrease in value of about 0,18% mainly due to my Stock Market Portfolio. On the last day of July there was a small pullback on the market and a start of a correction.
The biggest chunk of my net worth is in real estate. I also track monthly my other assets in here.
Evaluating real estate can be a bit tricky so I have used online evaluation tools which gave me a projection of what I would be able to get if I sold everything today. However, the real price will always be different and fees/taxes would have to be taken into account.
So I take such an amount with a grain of salt and I do not consider it as 100% realistic.
However, the main goal of tracking my net worth is to track its evolution and more importantly its direction. Like everyone else, I want my net worth to keep increasing with time.
Assets are great but most of us have liabilities as well. I am no exception so here it goes:
So adding these I currently have 465,713.15€ in liabilities, mostly into my mortgage.
As a reference, we have a variation of –2,55% MoM which is always welcome. This was mainly due to my mortgage payments.
Ideally, we want our liabilities to decrease with time unless we are using debt to leverage our investment strategy. While I might agree, that our mortgage can be considered a long term investment, it is not a golden rule.
There are many factors to take into account but at least in Luxembourg, we can argue it has been a safe haven and considered a good investment over the years.
I also have a few other loans but since their interest rate is so low, I am not really worried about paying them off. I think I am better off using the money to capitalize on my investments but it’s a personal decision.
I have been quite disciplined so far and I take all my savings/investments in auto mode. It means, I pay myself first before spending my income by setting up automatic monthly transfers. To be able do it, it helps if we have a good picture of our monthly expenses and living within a budget as I mention here.
I am not against paying off debt when interest rates are higher than your investment returns. This a common analysis on whether you should pay debt or invest.
The Net Worth
So taking my assets and liabilities, I am worth 204,443.14€ (as of July 31st)!
This represents an increase of 5,69% MoM (Month over Month) and now I can start my graph:
My assets did not move that much but I did manage to reduce some of my liabilities.
Still my net worth is not bad at all considering I am in my early 30s. However, I would be much better off if I had started my financial freedom mission a few years back.
My current mindset, priorities, and discipline would avoided a few financial mistakes that every millennial tends to make.
But taking into account my savings rate and investments, I still see an achievable target of 215,000€ in net worth by the end of the year.
This assumes I will be able to pay down some of my debt and would have a positive evolution on my investment portfolio. This last part is largely dependant on how the stock market will develop given the current risk factors.
What is your net worth goal? Let me know in the comments below.