Tracking Net Worth and Cash Flow

In December’s post on creating financial New Year’s resolutions that work, I suggested taking some time to take stock of your current financial situation. Not only is this important if you want to set and accomplish concrete goals around money, but it also plays a huge role in tracking progress on these goals throughout your life. But how exactly do you start?

The two basic metrics you’ll want to pay attention to are tracking cash flow and creating a net worth statement. One without the other may result in a misleading picture of your finances or limit your thinking about long term financial goals—which should incorporate shifts and changes in both, according to what’s important to you.

Calendar of January

Net Worth

A net worth statement is like a single point-in-time snapshot of your financial situation.

It tells you nothing about how money flows on a monthly or yearly basis. It doesn’t require constant tracking, so although you may choose to do it more often, simply creating an annual net worth statement is often a good place to start. It is also an essential tracking tool for lifetime financial progress.

A net worth statement is a statement of the value of what you own minus the value of what you owe. What you own includes checking and savings accounts, other investments, and retirement accounts. It also includes “use assets” like your home or car. Typically, in order to minimize how many “use assets” need to be recorded, I encourage folks to focus only on recording use assets over a certain dollar amount. Focus on big-ticket items like homes and cars so you don’t get bogged down trying to put a dollar value on everything you own.

Net Worth = What you own – Value of what you owe

A net worth statement can be both a powerful tracking tool over the course of a lifetime, as well as a powerful motivator. When cash flow feels tight because you are diverting more money into debt payoff, retirement accounts, or perhaps you just purchased a home, there can be motivation in seeing the growth in net worth that these choices are providing for.

Person at desk with coffee and calculator

Cash Flow

Put simply, cash flow is a statement of what you earn minus what you spend for a given period of time. 

It tracks how money is moving in and out of your life over time, rather than how money is accumulating. For many people who struggle to track finances, tracking cash flow is a major pain point, but it’s essential to understand your cash flow if you hope to make educated financial decisions and set reasonable goals.

Tracking cash flow is typically done monthly because that time frame lines up with the way most people get paid and pay their bills. However, for anyone manually tracking their cash flow and trying to get a sense of what and how they are spending, I would encourage at least a weekly check-in to review and categorize expenses. Otherwise, it can become overwhelming at the end of the month to go back and look at what you’ve spent and categorize it.

Additionally, the more often you check-in with yourself about money, the more awareness you are forced to bring to your spending, which for many is enough to interrupt at least some of our unintentional spending. I typically find that the more regularly the check-in occurs (for example, spending 5 minutes at the end of each day reviewing and recording expenses) the more likely it is that the cash flow record will be accurate and that a month of unusually high spending might be caught and modified before it ever occurs.

The more often you check-in with yourself about money, the more awareness you are forced to bring to your spending, which for many is enough to interrupt at least some of our unintentional spending.

Getting a handle on cash flow is challenging.

It takes time and regular attention to money coming in and money going out. It forces you to look at where you are spending money, which can be uncomfortable for some people. It can also take longer than expected to get a good sense of cash flow. Though many of our expenses are experienced monthly, others (like car maintenance, vet bills, etc.) don’t materialize that often. So, I encourage folks to commit to at least a year of careful tracking to get a true sense of their cash flow. A month or two can be misleading because it often fails to capture the full breadth of one’s income and spending.

Methods for Tracking Cash Flow and Net Worth

Finding and committing to a clear method for tracking ones Net Worth and Cash Flow isn’t easy, and different methods will work better for different people. For years, I did mine in a notebook because I enjoyed the act of physically writing the numbers down. For me, it brought a lot of intention and awareness to my finances. For others, that might feel overly burdensome. Recently, I’ve moved to a spreadsheet because I want something that’s easier to pull up and look at as years go by. I’ve had clients who have had good luck with apps, and others who disengage too much if the app is doing the work for them. There’s not one right way to do this; the important part is finding a way that consistently works for you.

If you’re looking for a place to start and modify from, you might try this spreadsheet I developed which includes both an annual net worth tracker and a monthly cash flow tracker for 2022. Though there are some suggestions for categories, they are editable so that they can be adjusted to reflect your financial situation.

Download and start tracking

If apps have given you a clear path to success for other goals, like exercise, dieting, or better sleep habits, the most robust of the financial tracking apps that I’ve found is Monarch. This isn’t an affiliate link – just a recommendation based on what I’ve seen and played around with. Unlike Mint and You Need a Budget, I think Monarch does a better job of looking at both the cash flow and net worth sides of the financial picture and has a much more intuitive user interface. It does have a monthly fee attached to it ($10 at the time of this writing), but ultimately that may be a small price to pay if it helps you make big steps towards your financial goals.

Person fishing in mountains with a territorial view

Though it may feel like a challenge to step back from your audacious financial goals for 2022 and instead take a year just to get a sense of where you are, I encourage you to take the time to just observe and record.

It will not only help you set manageable goals and plans for the future, but it may also have more of an impact than you expect on current spending and savings habits.

Start tracking your finances today!
Download THe SPreadsheet
Check out last month’s blog post
Resolutions that stick