Getting out of debt is hard to do but it isn’t hard to track your progress. More than likely you’ve got some huge number in front of you and your goal is to get it down to zero. Having that goal in front of you constantly is motivating as hell. For me, tracking my progress towards a goal motivates me to stick with it.
The big goal Kim and I are trying to accomplish currently is financial independence. How in the world do you track a goal that big? By breaking down your progress towards that bigger goal into smaller, trackable goals. What exactly should we be tracking though?
I researched ways people track their progress to financial independence. This is when I came upon the FIRE community and bloggers. FIRE stands for Financially Independent, Retire Early. These are people that “retire” well before the traditional retirement age (usually age 60+).
** side note: These are the bloggers and their articles that I came across during my research. Some of them I found before we started blogging and others I found afterward.
- Sam at Financial Samurai | How To Retire Early And Never Have To Work Again
- Joe Udo at Retire By Forty | Are you on track to retire by 40, 50, or 60?
- Mr. 1500 at 1500 Days To Freedom | Goal Progress
- PoF at Physician On Fire | Physician On Fire Guide To Retiring At 45 | The Live On Half Challenge
I’ve summed up all these articles into two numbers you need to track – Savings Rate and Net Worth. Since getting my hands on this information we’ve been tracking both our savings rate and net worth.
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Savings Rate
Savings Rate equals how much you save (per month or per year) divided by how much you’ve earned. For example, if you bring home 40k a year and save 10k a year then you have a 25% savings rate. If you are budgeting it should be extremely easy to get these numbers and calculate your savings rate.
If you aren’t budgeting but want to start feel free to subscribe to our blog to get our free budget template. You can also check out our post How To Get Started With A Zero-Based Budget to show you how to get started with doing a budget.
Net Worth
Net worth is the value of your assets minus your liabilities. Assets are anything that you own of value that can be converted to cash. Liabilities are anything that you owe money on including any debts, loans and even things that are considered assets if you owe any money on them.
Net worth can be a bit harder to track in comparison to savings rate.
So let’s say I own a home worth 200K, have 10K in cash, own a car worth 15K, and have 25K in retirement funds. The value of my assets would be 250K. Now let’s say that I owe 190K on that home, 18K on that car, have 20K in credit card debt, and 50K in student loans. These are my liabilities, which equal 278K. In this case, my net worth is negative 28K (250K – 278K). Your net worth is the big picture and represents the result of financial decisions made over a long period of time.
Tracking Our Savings Rate And Net Worth
Our Savings Rate
We started tracking our savings rate at the beginning of this year. I created a formula in our own personal budget template that will automatically calculate our savings rate.
Here’s a picture of a special “Year to Date” tab I created in our budget template to help us track our savings rate.
Our Net Worth
We decided to start tracking our net worth last year when I was losing motivation towards reaching our financial goals. When we bought our house the plan was to cash flow updating it. After it’s updated we discussed that we would work towards paying our home off. We’re on track with how long we thought it would take to update our house. However, I am beyond ready for financial independence since our house is the only debt we have. Kim, on the other hand, wants our house updated. It’s her motivation for wanting to stay here, and it’s definitely working now that we have the kitchen updated.
Our compromise to make this work for the both of us was to make sure we were investing 15% of our income (baby step 4) and to track what we were investing. Last year I started researching ways to easily track our net worth. That’s when I came across Personal Capital, which is a free online tool that you can use to track your net worth. All you have to do is create a login and then link it to your banking and investment accounts. You will also add any car loans unless they’re paid off. If they’re paid off, you add the car value. The same goes for your house – add the amount of your loan, but also add how much your house is currently worth. It will do the rest for you.
Personal Capital also has really cool reporting features that allow you to see your investing rate of return compared to the indexes over a time span that you specify. That’s particularly helpful for me because I need to see progress in order to stick with something. The ability to look back exactly a year ago and see what we’ve been able to accomplish is huge for me.
** side note: They also have a Retirement Planner Calculator that you can use to help plan for your retirement. After all, part of the reason for increasing your savings rate and net worth is so that you can plan appropriately for your retirement.
Personal Capital has helped to keep me motivated as well. Kim says I check it too much – OK maybe I’m a little excessive since I check it at least three times per week. But I think it’s amazing to watch our net worth grow as our investing increases and our mortgage loan decreases.
Final Thoughts
Parts of this post was math/numbers intensive. I want to clarify that even though the numbers are fun for me that isn’t the point of this. I remember some years ago when Kim and I were talking about this with a group of friends one day. One of them who doesn’t really care for this stuff said, “So this is just a big game to see who can get the biggest number? Is that the point?” My answer – NO. This isn’t just about amassing a huge sum of money just to brag about it. It’s about having the ability to NOT work if I don’t want to and being able to take a vacation without always having to ask my boss for permission. It’s about making sure my family is always financially stable no matter what is happening in the world. Money is only a tool to accomplish these goals and we’re tracking our savings rate and net worth to aid in doing so.
Do you track your savings rate and net worth? If so, what tools do you use? If not, have you thought about it?
** If you’re currently using our budget template and would like help adding the savings rate calculation to your budget template, let us know! Also, if you’re looking for an easy way to track your net worth, don’t forget to check out Personal Capital. **
I use an excel spreadsheet to keep track of my finances(including savings rate) on a monthly basis. It is almost to your budget template in which includes my monthly income and a breakdown of my expenditures(rent, groceries, bills, etc..). I think it’s great to see your savings rate just to know how much you are saving and see what areas I could save more.
And just like you guys, I have Personal Capital to see all of my investment accounts so I do not have log in to each one individually, its all there. I was like you Omar when I first had it, I logged on like 2-3 times a week just to see the progress of the accounts…lol. But now checking up on it 1-2 times a month is fine.
Overall, I believe evaluating your financial situation especially your savings rate and net worth are important factors to see if you are making good progress to reach one of your goals like buying a home, retirement, to keep building up your savings, etc..
Thanks for the comment Kris. I think I’ve cut checking personal capital to twice a week now(lol)! I’m going to get it down to 1-2 a month like you one day though! It has been so fun and motivating seeing my networth grow so quickly! It’s amazing how much money you can save when you are debt free. I can’t wait to get rid of this mortgage!
Interesting question and analysis! I agree with you that we should! Mr. FAF and I have been focused mainly on the savings rate. We didn’t really think much about net worth until I joined the PF blogging community. To us, we were just poor and didn’t have a big net worth because we are still in debt (mortgage). But after I calculated our net worth, we were relieved to see that maybe it’s not as bad as it seems. 😀
Tracking our networth is relatively new to us as well. It’s crazy to see how much debt hurts you when you look at the numbers. I’m glad you are doing better than you thought though!lol!
Yes, yes, yes. You should be tracking your net worth and savings rate. These two thing have motivated me to push harder for FI. It is a numbers game, but not in comparison to others. I’ve been tracking my net worth since 2012 through the loss of my properties, divorce, and rebuilding my life. It is nice to look back and see the progress you’ve made! As for my savings rate, I’ve only been tracking that for a couple years but knowing that number makes you losely aware of your timeline in terms of FI. See: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
I’ll add, tracking your expenses is HUGE in helping to see where the holes in your spending are. I found a lot of waste in my grocery, restaurant, and entertainment areas. I still do all of those (obviously groceries!) but I have trimmed all of those expenses considerably and STILL live an awesome life including plenty of travel. 🙂
It’s nice to hear that even with having to rebuild your life, you started tracking both your savings rate and net worth. I think it’s important to do so especially in times like that because you still have to be prepared for now and for your future. Being able to look back and see how our savings rate and net worth has grown is one of the things that we like about tracking it. It’s like motivation within itself to see if we can do better.
When it comes to budgeting and tracking our expenses, it’s definitely easy to look back and see where our money is going. We don’t eat out much, but our grocery bill is always a debate. I don’t think it’s something Omar will ever agree to try to decrease and I’ll never agree to try to increase it. Lol. It’s also nice to hear that you feel like you still live an awesome life because so many people think that by budgeting or tracking their expenses they won’t be able to do so.