I have a trick that I’ve used since 2012 which has helped me meet my net worth goal. It has been especially effective when the markets have performed poorly.
For the young investor or the wage earning healthcare professional, a weak market is ideal because that’s when you can buy the same investments at discount.
Budgeting has certainly been an incredible tool in order to have enough disposable income to put towards growing my net worth. More importantly, I have been keeping track of my net worth on a spreadsheet and setting numeric goals to meet.
Step 1: tabulate your net worth is
Step 2: track your net worth weekly
Step 3: set a net worth goal by rounding up $5,000
50% of physicians cannot afford to max out their job’s retirement accounts. This can hurt you a lot as a healthcare professional who has already lost a decade of saving/investing.
Step 1: Figure Out Your Net Worth
This step is tedious. A large paper whiteboard on your wall is more fun but a digital spreadsheet is easier. On the first column you have all your debts and assets.
On the first row you’ll have dates when you tabulate and check on your investments.
In the beginning it’s better to do this every 1-2 weeks, later you can switch to monthly tracking.
Start filling in the value of each asset. The value of your investments will change almost daily and your home’s value will likely change every few months.
A vehicle will often depreciate regularly which is a good exercise to visualize on a spreadsheet. The same holds true for the Rolex watch or Hermes purse.
The goal is to increase the overall net worth. Adding anything possible to whatever asset class will achieve your next net worth goal.
Step 2: Check Net Worth Regularly
One can learn a lot by regularly checking on the value of an investment account. Sometimes you will discover hidden fees and other times you’ll see that there are chunks of cash sitting around collecting dust.
Until I kept a spreadsheet I had no fucking clue that the balance of my student loans was increasing! I had no idea that my payments were set so that they would pay less than the accruing interest.
In the beginning it’s helpful to visit the spreadsheet every few days and look at each asset balance and copy that number over into the spreadsheet.
Anything that has a resale or market value counts towards your net worth. It could be positive or negative:
- securities investments
- real estate
- retirement accounts
- bank accounts
Step 3: Round Up To The Next Goal
If my net worth is $45,000 then I set a net worth goal for $50,000. The interesting phenomenon is that sometimes the market will assist me and I’ll hit $50,000 without adding a dime. So the next goal will become $55k.
Other times the market drops my $45k investment down to $35k. So I set a goal of $40k. This method has some very powerful hidden features.
When the asset goes down in value but you still have the same goal, then you will add more money which means you’ll buy the same asset at a cheaper price.
At the same time, when the asset is higher in value (inflated), you’ll buy fewer of the appreciated asset. This might be the time to focus more on paying down your debt.
Buying Investments vs. Paying Down Debt
When assets are inflated in value then the best way to improve your net worth is to pay down debt. Even during shitty months when my net worth was steadily declining, I was able to raise it back up by paying down debt.
Though it’s not a universal truth that paying down debt is always better than investing, there are more opportune times to do more of the former while still adding a little towards your investments.
In the above spreadsheet the value of “All Investments” is less important. I always focused on the net worth and my net worth goal.
“Net Worth” went from $40k → $46k → $51k→ $84k → 98k → $116k – all within about 6 months.
The markets were doing most of the work so I focused on increasing my “E-fund” (emergency fund). I also was paying down my student loans, credit cards, and auto loans (not shown in the spreadsheet).
Add your own flares. I like to see how much my net worth changed each month. So I have a “Net Worth Change” section as well. They all have spreadsheet functions in them so I don’t have to sit there and do the math myself.
Setting A Net Worth Goal
Designing your own spreadsheet instead of downloading one with all the functions built-in will be more helpful. I have made hundreds of changes over time to my spreadsheet and deleted several years of data just because it was no longer relevant.
$5,000 net worth goal increments are the ideal for healthcare professionals. If your budget is tight then start with $1k and at some point your increments will increase to $10,000 and eventually $50,000.
As an example, if my net worth of $250,000 dropped to $230,000, my goal would be to bring it up to $235,000. Regardless of my net worth going up or down, my goal was to round up to the next $5,000 increment.
My net worth currently sits at $815,000 and the goal is to get it to $820,000. Should the market tank and it drops down to $650,000 then I’ll be aiming towards $655k, then $660k, $665 and so on.