An Engineering Approach to Money

It is a good idea for everyone to know their Net Worth. It’s easy to calculate, just total up all your assets and all your liabilities. If you are using a tool like Quicken it will do all the work for you.

After I had been out of College for 3 or 4 years and before I started using Quicken full time, my then Girl Friend (now Wife) and I would total up our Assets and Liabilities every year, print it out and save it. This allowed us to track the progress we were making every year. Being a pack rat I still have this stuff. I can see that the money saved in my investment accounts went from $24,114 to $47,112 from April 15 to Dec 31 1991. I think I was making about $60K/year at the time working as a computer programmer. Dana, my girl friend, was a grad student, and we were living like grad students saving about 40% of my paychecks. By writing down exactly what was in our investment accounts at the time we could track how we were doing and what progress we were making toward our long term goals.

This is not to say we didn’t spend money on things just because it was fun. Shortly after this statement we dropped $20,000 on an Airplane that we owned for about 4 years. As any private pilot knows an airplane is a huge money pit, worse than a boat. But by tracking our expense we knew we could afford it, and what the effect of that purchase and it’s running costs would be on our savings.

We each had about $15,000 in student loan debt at the time. so our total net worth was just barely positive. But we were making good progress and could see our assets growing every year. To know where you stand and from that project how quickly you will meet your goals allows you to make decisions about how much to spend and how much to save.

I believe the old saw that people don’t plan to fail, but simply fail to plan is not far wrong. It is important to know where you stand on a regular basis so that you can now how you are doing and if your current choices will get you where you want to be.  You will also know if you need to change something up. Take the time at least once a year to track down all your assets and all your liabilities and calculate your net worth. Pull it out a couple of times a year and see if you are still making good progress.

A tool like Quicken makes that much easier since it allows you to graph your net worth over time, look at the current values at any time, and watch it on a much more regular basis.

Saving money is not about giving up everything that is fun in your life, but it is extremely important to know where you are, where you want to go, and if you are making progress toward your goals. This allows you to know if spending that money is okay, or is going to put you in a pickle.

So take the time to calculate your net worth every year and use that info to track your progress toward your goals. If you don’t know where you are or where you are going, how will you know how long it will take until you get there?

This entry was posted on Tuesday, April 24th, 2007 at 11:57 am and is filed under Theory. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.