FINANCE YO SELF

Personal Capital – Net Worth Made Easy

Very early in any stage of personal finance will come the topic of “Net Worth”.

What is Net Worth?  It’s your assets minus your expenses.  But it can get a whole lot more complicated than that.

Why Should I Know My Net Worth?

Despite being one number, your net worth can tell you a great deal about your financial health.  Knowing how much you have in assets like savings and retirement accounts vs. how much you own in student loans, on a car or a mortgage is critical – you can’t start if you don’t know where you are.

If it’s a negative number, that means your obligations (debts) are more than your assets.  A recent college graduate with student loans and no retirement savings will likely have a negative net worth.

If it’s positive, that means you have more assets than debt.

One tricky spot in this area is houses.  Typically, your house will show up in two places:

  1. As an asset, based on the value of your home.
  2. As a debt, based on how much you owe on it

If your house is worth less than what you owe, you’re underwater on it.

We include houses and other property because they typically hold or increase their value over time.  Deprecating assets like cars, electronics, furniture, etc. are not included because you would probably sell them at a loss.

What If I’m Negative?

Depending on what stage you’re at in life a negative net worth can be typical or a warning sign.  As I mentioned earlier, a college graduate with student loans and no retirement savings will likely have a negative worth – over time as they pay down their debt and save money, that number will turn positive.

If you’re in your 50’s and looking ahead to retirement and see that your number is negative, it could mean that you don’t have enough saved, you owe more on your house than it’s worth, or that your money is in all the wrong places.  Without knowing your net worth, you could end up in trouble down the road.  By knowing that number (and realizing that you have the power to change it), you’re taking a huge step in gaining control of your financial health.

Personal Capital

Personal Capital is the easiest way to get a complete overview of your finances in minutes.  Instead of manually logging in to each account, you create one account, and link your existing accounts (signing up is 100% free).  You do have to supply your usernames and passwords – if you’re concerned about security, I recommend looking at the various levels (encryption, authentication, secure servers, and no saved data) of protection the company employs to protect your data.  For reference, I’ve had an account with them for nearly 2 years and have never had an issue.

Once your account is set up and you’ve synced your accounts, you’re presented with a well designed dashboard displaying the values of your accounts, a graph of your net worth over time, and income and expenses reports.  All updated automatically.

The beauty of having your accounts update automatically lies especially in accounts for investments and debts, as changes in the markets and interest changes the value of those accounts daily.  If you have automatic transfers, you don’t have to touch a thing.  Your account balances will still update.  Direct deposits on payday will file under income.

More Than A Financial Snapshot

While having a system that automatically tracks your income, spending, account balances, assets and debts is pretty amazing, there’s still more to explore.  Personal Capital gets a lot of love for it’s insights into investments.  After linking your investment and retirement accounts, you’re provided with information like your personal rate of return, how well specific assets are performing, and perhaps most importantly, how much your investments are costing you.

You’ve likely seen or heard a news report about high 401k fees, which can seem like a small deal.  1% in fees doesn’t seem like a whole lot.  The reality is that it’s not just your investments that compound and grow over time – their costs grow and compound too.

Dig a little deeper and you’ll find that that 1% can actually eat away at a third or more of your money by the time you retire.  Or to put it another way, would you rather have $100,000 a year in retirement income or $66,000?

Personal Capital also tracks your spending and automatically categorizes expenses, giving you an idea of how much you spend each month on groceries, gas, entertainment, etc.  While the system can sometimes mis-categorize purchases, it only takes a little tweaking to resolve, as opposed to manually tracking every purchase you make.

Start With The Net Worth

Suffice to say Personal Capital is a powerful tool.  More than that, it’s an empowering tool – an application that not only makes your life more convenient, but can help you improve it.

I can’t stress enough the energy and motivation that comes from just getting started, especially when it comes to the often taboo subject of money.  Personal Capital makes that first step incredibly easy and helpful.  Once I was able to have all that information in one place, I was able to take control over my money and make personal finance work for me instead of living in the dark, paycheck to paycheck.

Finance bloggers love Personal Capital.  Honestly, it’s a growing company with a great affiliate program.  It’s also a program that shows up in countless monthly updates, net worth reports, and reflections on spending.  Basically, it’s a tool that will stick with you.  I give a lot of credit to a program that not only gets you over the hump of shining the light on your finances but makes you want to stick around and see how they do.  When your progress (or regression) is easy, intuitive, and nice to look at chances are you’ll want to keep an eye on it.

Even though I’ve tracked my net worth manually for the last year I still check my Personal Capital account a couple of times a week.  I can take a quick glance at my finances or spend an hour pouring over how my investments are doing.  It’s not just numbers on a screen anymore.  It’s personal.

Personal Capital is available as a web application as well as an iPhone and Android app.

This article contains affiliate links.  I only review products and services I’ve used myself and think would be helpful to readers.  Clicking on the links will earn this blog a commission.  Thank you for reading!

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2 Comments

  1. Hi Matt, found your blog via the Rockstar Finance directory. Love Personal Capital. I noticed your networth is getting closer to 0 and it seems like you’ll be out of debt in no time. Good luck!

    • I’ve probably thought about Net Worth Zero and being debt free every day for the past couple of years, it’s great to go back and look at the progress and you get a great deal of momentum when you start to reach certain milestones – I’m definitely feeling that momentum now.

      Thanks for stopping by!

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