Tracking net worth is the first step towards regaining control of your finances, but actively managing it is the key to building long-term wealth. And just like the performance of my advertising campaigns, net worth is always a moving target with multiple factors at play. Therefore it is crucial to understand the driving forces behind your net worth figure and decide when you should take action.
In this three-part series of maximizing net worth, I will break down the following:
Let's get started!
Under the Hood of Net Worth
To better understand the driving factors behind your net worth, you'll need to get up close and personal with the type of financial assets you own. Personal Capital is my go-to platform for tracking net worth, but I like to take things a step further and break down my accounts into four categories:
Includes bank accounts and any cash on hand (or under your bed).
Any type of debt or financial obligation to another party, including credit card payments, bills, loans, and mortgages.
3. Liquid Assets
Investment accounts or assets that can be easily converted to cash without a significant impact on its value. Examples are brokerage or money market accounts.
4. Illiquid Assets
Investment accounts or assets that cannot be easily sold quickly without significant loss in cash value. These accounts include taxed-advantaged accounts such as retirement accounts or 529 plans, alternative investments, bonds, and CD’s.
Each of these categories has unique factors that can influence overall net worth, ranging from spending, interest rates, and market conditions. By aggregating your assets into the four categories above, you can isolate the key variables that affect each asset type and subsequently determine if they are impacting your net worth growth.
Let's unpack some of the common factors that influence performance in each category:
As you work towards building long-term wealth, think about what attributes are the key drivers in your own financial path. While not all factors are always within your control, it is important to be aware of the roles that each one plays and how to best navigate them.
In the next part of this series, we'll be taking a deeper look at these key drivers and how fluctuations in them can impact your overall net worth growth.
Get in the Front Seat
Part of the fun of my Analyst role was figuring out how to make each of my advertising campaigns run optimally given the diverse nature and goals of each brand. Managing net worth is no different and your financial blueprint is as unique as you!
Don't default to grinding away at a job you don't love or cut back on your lifestyle because you think you're falling behind on your finances. There are many different ways to build wealth optimally and efficiently. Understanding the underlying forces that are driving your net worth is the best place to start.
When it comes to managing your finances, take the front seat! Check in on your net worth and always ask if there is something that can work better for you. You're already on your way to better and brighter future.
Tools of the Trade
Unsure of how to put this all together? Start off by mapping out your assets and asset allocation over time using my Asset Allocation Workbook. For Excel & Google Sheet downloads, click on the buttons below.