The First Step to Financial Security

Know what your worth

The first step

There are endless articles on how to make, save, invest, and protect money. These are all great. Sometimes you pick up a tip or two. Sometimes reading them serves as motivation to spend a little less or work a little harder or invest a little better.

But the first step on your financial journey you want to take is simple.

Measure your net worth.

“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” ~ H James Harrington

Measure… understand… control… improve… repeat

Yes, if you boost your income, you will be better off. Same with if you can cut your expenses. Same with if you can get a better return on your investments.

But you won’t truly know the full impact of these actions if you do not measure the result.

Money is complex. It’s hard to see what boosting your income is doing for you if you are not tracking how much of that you are saving vs. increasing your lifestyle. How much is going into investments? How are those investments doing? Is it compounding? Over what time period?

All of these variables come together to cumulatively impact your net worth.

Net worth is the ultimate tracking of your financial well being

If you are a recent college grad, this is a painful thing to track. At least for me, it was.

You are probably starting off well in the red with student loans, perhaps a car note, and very little saved or invested, and very little time has passed for anything you have invested to have grown.

If you’ve found a great job, it’s much more pleasant to look at your income. And then project if I can get 8–12% raise next year, then I can perhaps upgrade where I live, what I drive. Eat a bit better. Live a bit better.

That is why so many of us focus on income.

But if you can switch that mindset to focus on net worth your entire life will change. If all your decisions are made with knowledge of your net worth and how it is tracking. Your decisions will be influenced by that knowledge.

Download an app to start

Just as in everything else in life there is an app for that.

The great thing is that after setting this up, it becomes automatic. You don’t need to sit down with a calculator or excel file at the end of every month as a few years ago you might have had to do.

Now just get either the Mint or Personal Capital app. Both are great apps to use. Mint is more of a budgeting app but can be used to track net worth. Personal Capital is more a pure net worth tracking App.

I’ve used both of these and like Personal Capital better. Since, Mint tries to be both a budget and net worth tracking app in one it makes it more difficult to use if you just want to use it to track your net worth.

Or you could just use your bank. I personally have a Charles Schwab savings and investment account. So, I just track my net worth with them. They also give me the ability to link outside accounts (my 401K, IRA, and HSA for example) and even add in car loans, mortgages etc. So, I just input everything into there and can open it up any time to see my net worth.

Knowing your net worth will have an impact on you financially.

Gradually, you will see how decisions in your life impact your net worth. It’s not just income and expenses. It is also what you are investing in, rates of return, interest rates, time etc. that will impact your net worth.

Then slowly over time. You will end up making better decisions because you are thinking about the impact to your net worth.

Practical tips

So, here is what you do. Download Personal Capital as your app.

  • Link your saving and checking accounts.
  • Link any investment accounts you may have.
  • If you have a car and a loan you an add those in directly in the app without linking them. You will have to update the loan once a month when you make a payment.
  • If you have a house and a mortgage same as above.
  • Any other miscellaneous accounts you have if they are with any financial institution you will be able to link them. So, student debt for instance.

The app will then add up all your positives and negatives and tell you what your net worth is.

Now you at least know where you stand and can start measuring. Then you can understand it, control it, improve it, re-measure it and keep improving it.

Don’t bury your head in the sand! I know it’s tempting. Who wants to be reminded of their student loans all the time. But eventually, you are going to have to pull your head out and take a look at your finances. Might as well do if sooner than later.

I promise you. The view will get more pleasant once you have some idea of what’s going on.

Finance professional with a passion for reading, writing, history, economics and the world.

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