Author Topic: Tracking Net worth, losing motivation  (Read 8576 times)

StetsTerhune

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Tracking Net worth, losing motivation
« on: October 13, 2012, 07:31:45 AM »
So for 8 months or so I've been keeping a spreadsheet tracking my net worth. It's definitely helped with my planning for the future, and the biggest advantage has been having something to point to for convincing the wife that we really can retire in a few years and we need to keep up what we're doing.

Here's my problem though. I have enough money in the stock market at this point that there's a pretty big variance in my net worth from day to day and week to week.  I don't have any problem with this, I'm not at all risk averse and am good with how I'm investing for the long term.  Unfortunately, if I have a great month spending-wise, or a terrible month spending-wise, my net worth can still move significantly in the opposite direction. It makes me feel (though I know of course it isn't) like what I spend day-to-day is kind of meaningless for my overall plans.

Any one else have this issue? Should I just stop tracking my net worth for a while? Any tricks for how I can stop thinking this way?

TomTX

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Re: Tracking Net worth, losing motivation
« Reply #1 on: October 13, 2012, 07:53:43 AM »
Sure - instead of (or in addition to) tracking net worth, track your net income and savings rate.

September Income: $4,000
September Expenses: $1,943
September Asset Change: $-1,500

Net Income: $2,057
Savings Rate: 51%

himynameisrob

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Re: Tracking Net worth, losing motivation
« Reply #2 on: October 13, 2012, 08:18:53 AM »
First of all, congrats on accumulating enough that you're seeing big variances. We're in a similar position so for the past two years I've been doing two monthly calculations: 1) overall net worth, and 2) income vs. expense.

The income vs. expense calc isolates monthly spending so we can see differences from month to month. We track our spending monthly (although you could do weekly or daily) because that's how many of our recurring expenses like our mortgage seem to fall. Each month we set aside money for large non-monthly expenses each month and count those as expenses (auto insurance, property tax bills, car replacement fund, etc.). This helps smooth out the lumpy periodic expenses so we get a more accurate month-to-month comparison. On the income line, we only include realized income, which is mostly our the income from our jobs. I ignore investment gains and losses entirely, unless we sell stock in order to pay for an expense (we haven't really had to do this yet).

I have a bit of accounting knowledge so this setup is sort of like how company financial statements work. Our income vs. expense sheet shows income and expenses for a particular period (one month) much like a quarterly income statement would do for a company. The net worth calculation shows overall assets, liabilities and net worth (which is like the owners equity line of the balance sheet). The net worth calculation is cumulative, so you can see your cumulative progress, but the income vs. expenses page starts at zero every month, so you can see how your expenses did each period. Good luck!

arebelspy

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Re: Tracking Net worth, losing motivation
« Reply #3 on: October 13, 2012, 08:33:23 AM »
Both the above suggestions are great.

In addition, I'd add that you should have a trend line for your net worth graph.  Then, even when individual months go down, you can see an overall positive trend.

And be happy when your net worth decreases due to stock market fluctuations!  That means the money invested that month bought stocks on sale.  If you can keep having net worth go down for awhile while investing (based on fluctuations, not losing investments), when it goes up you'll be doing great.
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skyrefuge

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Re: Tracking Net worth, losing motivation
« Reply #4 on: October 13, 2012, 09:35:19 AM »
Yeah, Mustachian first-world problem, right?  I had a similar feeling a little while ago when I got a $5k/year raise, and felt kind of guilty because I know lots of people would love to see that kind of income bump, but my thought was "meh, thanks, that's nice, but it feels kind of meaningless since my net worth can easily jump up or down that much in a day".

All the previous advice was really good.  I don't think there's any good way to remove the de-motivating force market fluctuations have upon expense-reduction, so the only trick I know is to draw separate motivation from other sources to counteract that de-motivation.  You just have to trust your intellectual side that says "flexing my frugality muscles DOES matter!" even though the net-worth tracking is devilishly trying to tell you otherwise, and then take separate motivation from that activity (maybe easier said than done).

Also, if you've only been tracking for the last 8 months, you've only seen pretty positive market conditions, with the market gains making any savings-gains look pretty inconsequential.  But in a falling market period, it might be easier to shift your focus ("aughh, I don't want to look at my net-worth!!!") and draw more inspiration from the income/expense view of things.  And then maybe the "respect" you gain for that side of things will stick with you even when the market goes back up again.

In Quicken, I do regularly look at my current net worth number, and also at the history via a nice graph which filters out some of the day-to-day volatility.  But then I also look at my expenses-to-date.  I don't really track month-to-month expenses or target a budget, but for almost a decade my goal has been to spend less than $20k/year, so that's the number I keep an eye on.  "It's July and I'm only at $7k?  Awesome!"

Also, I do twice-monthly auto-investment, at a rate that attempts to keep my cash account at a constant level.  If I notice my cash account steadily rising over a period of months, I'll increase the amount of the auto-investment to counteract it.  The effect is to further separate frugality-flexing from investments in my mind.  If I start spending too much money (or making too little), my cash account would eventually drop to 0 and I'd "go broke".  Obviously I wouldn't actually be "broke", since I have gobs of money in my investment accounts, but since the idea of withdrawing from my investments (or even lowering the amount of auto-investment) seems abhorrent to me, the mind-hack seems to be effective in focusing attention on frugality.

TomTX

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Re: Tracking Net worth, losing motivation
« Reply #5 on: October 13, 2012, 10:56:14 AM »
Both the above suggestions are great.

In addition, I'd add that you should have a trend line for your net worth graph.  Then, even when individual months go down, you can see an overall positive trend.

A trend line is great - for a new investor, starting with a 180 day moving average, then later on shifting to 1-year and multiyear moving averages.

Catbert

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Re: Tracking Net worth, losing motivation
« Reply #6 on: October 13, 2012, 11:56:25 AM »
Your problem with networth swings will get keep getting worse as your network increases...and its really meaningless on a month-to-month basis.  I just do networth once a year.  Month just do income, spending, savings.

MooreBonds

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Re: Tracking Net worth, losing motivation
« Reply #7 on: October 13, 2012, 12:47:48 PM »
Each week, I update my financial holdings by downloading prices from my Yahoo! portfolios, and updating my DRIP records in my spreadsheets, and then copying and pasting each account value on its own page. I normalize my account values to a NAV (like a mutual fund), with my starting point at a price of 100...so I can easily see on both a weekly basis and over time how it fluctuates, and the appropriate percentage movement just by a glance.

Also, my goal is to retire at around 45 - so my conservative SWR strategy is to hopefully live off of dividends. Whether or not you follow the 'living off dividends' approach, it's helpful to add another column to your portfolio spreadsheets and networth sheets of what your portfolio spits out each year in annual dividends and interest.

In my spreadsheets, I manually input each positions annual dividend rate, with that column updated twice a year. In actuality, since I only update the dividend data 2x/year, the amount that the portfolio spits out in dividends only really changes twice a year (unless I buy/sell some stuff)....but it's still a nice number to see and know that you could somewhat depend on this cashflow to support you, as a comforting factor as you see your numbers zigzag around.

icefr

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Re: Tracking Net worth, losing motivation
« Reply #8 on: October 14, 2012, 04:16:56 PM »
I may look at my net worth calculations throughout the month, but I *only* really calculate it and finalize it at the end of the month. Since I get paid only once a month, my net worth would be completely inconsistent to measure it partway through the month.

I also track my net worth in categories:

* Cash (checking account)
* Savings accounts
* Investments
* Property
* Overall

That way, I can see which ones are going up and down. I also track the net worth increase YTD, which is pretty cool to see and helps smooth out some of the day-to-day spending. I only do forecasting on the savings accounts, investments, and mortgage paydown, assuming that the rest don't change.

spi

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Re: Tracking Net worth, losing motivation
« Reply #9 on: October 15, 2012, 04:38:44 PM »
Not sure if any other finance applications have this functionality but with Gnucash's net worth charts I can choose the price that it uses for my investment portfolio from most recent, average cost, nearest in time, or weighted average. This allows me to easily see how much I have improved my net worth in a given period of time with or without the market fluctuations.

I also make heavy use of the profit/loss report to see how much I have saved in a given month or over the course of the year.

sol

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Re: Tracking Net worth, losing motivation
« Reply #10 on: October 15, 2012, 04:55:03 PM »
I have similar problems with motivation to stay "hungry" when it comes to controlling my expenses.  Foregoing a $5 impulse purchase is harder to justify when you're adding hundreds of dollars per day to your investment accounts or the market makes your net worth fluctuate by thousands in a single trading session.

I'd like to think the small purchases are still important, and that continued discipline will help me achieve my financial goals more quickly, but after a while they just seem to get lost in the noise.

Erica/NWEdible

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Re: Tracking Net worth, losing motivation
« Reply #11 on: October 15, 2012, 05:05:30 PM »
This: http://en.wikipedia.org/wiki/Moving_average

:)

I've got the total numbers down daily thanks to Mint now but I have gone a year+ without totaling anything up. I really liked one MMM post that said something like: "focus on total shares, not price per share." Takes the panic out of falling short term stuff too, to think: focus on number of shares.

happy

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Re: Tracking Net worth, losing motivation
« Reply #12 on: October 16, 2012, 05:45:42 AM »

The reality is that your portfolio and your networth will fluctuate. I realised a little while ago that whilst these fluctuations were demotivating whilst in the accumulation phase,  once retired they are likely to be much more anxiety provoking (terrifying really), if one hasn't learned how to deal with this. At this point a lot of my stash is in a retirement fund which I have absolutely no control over, and so I had been not paying too much attention to it.  I now check the balance regularly as an exercise in learning to watch  my stache and how it fluctuates day to day, what to expect and what's normal and to practice managing my emotions around these fluctuations.

So in addition to all the useful advice you've already been given, I would add try to see this accumulation phase as a practice session for the real thing... and practice how you will cope emotionally when you are retired.

offroad

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Re: Tracking Net worth, losing motivation
« Reply #13 on: October 16, 2012, 06:50:24 AM »
I've got the total numbers down daily thanks to Mint now but I have gone a year+ without totaling anything up. I really liked one MMM post that said something like: "focus on total shares, not price per share." Takes the panic out of falling short term stuff too, to think: focus on number of shares.

This is a great idea!!  will use it more often.