AAR29 - How I Track Financial Progress

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2:23That's 20 % off your first purchase with code investing at liquidiv.com. And so you're just putting yourself in a downward trend without even realizing it. Doing something like what I'm going to be walking through today of how to track financial progress will give you that lens to see, oh crap, okay, I'm heading in the wrong direction. And what I'm doing right now is not what I need to be doing. Let's start making the changes. And again, the sooner you make that change, the more your wealth is going to be able to compound over time, the longer you're going to be able to let it grow before you're trying to reach your desired goal.

2:54All that sort of stuff is having time on your side is the most powerful thing you can do with your wealth. And identifying problems as early as possible is...

3:15Good morning, everyone, and welcome back to At Any Rate. My name is Evan Ray, and we are here to help you make sustainable financial changes without breaking a sweat. And I've actually got another episode today that is going to be more of an I am here to help you make sustainable financial changes as opposed to a we, because I've got another special solo episode for you today. And today I'm actually going to be covering how I track my personal financial progress. And as always, when I'm covering these kinds of topics, nothing is meant to be prescriptive. Nothing is going to apply to everybody.

3:43all I want to do and all I really can do is share my personal progress, share my personal viewpoints and how I handle and track my finances. And it's best if you listen and just pick apart what works and what doesn't work for you and apply that to your own situation. And that's the best decision I think you can make. And for reference and to give a little bit of credibility because you're thinking, why do I give a crap how this person tracks their finances? Is it over the past three or three and a half years, a little bit over three years, I've actually nearly quadrupled my wealth. Now, this has been done without any risky investments or bets or anything like that.

4:19I know there are a lot of people out there. There's definitely a lot of content you can find online. We talk a lot about financial content and how clickbaity things can get. But there are genuinely people out there who have taken half their net worth, put it in a cryptocurrency, put it in a short-term option for stocks or something like that, and they have tripled their investment overnight, and now they're millionaires or something. There are crazy stories out there. And I have had this wealth growth, quadrupled my wealth, my net worth, without taking any of those risky investments. I've done it with a ton of growth coming from just general wealth growth of where my savings are put.

4:57We're talking about things like Roth IRAs, 401ks, high-old savings accounts, health savings accounts. Rather boring places is where this money has gone. If you actually want a breakdown of how much I save, where I save it, of what kind of percentage of my monthly income is being saved to these different kinds of accounts. I actually have a very detailed breakdown of that as well as an outline that you can follow in my last episode on how I decide how much to save. That gives a really good detailed breakdown of all that if you want to get a better idea. And also just to further lend credence to this and everything is that I've done this with buying a car, with buying a house, not saving every last penny.

5:34So again, we're not talking about some extreme of I quadrupled my wealth by only spending 5 % of my paycheck or something and putting all the rest into savings and scraping by living in a place I don't enjoy or this or that. None of that has applied. I do just want to give a bit of clarification as well that I haven't done this with earning some very low income. I think that's important to acknowledge. I'm not scraping by. I'm not on minimum wage. I'm not having to survive on food stamps, which many, many people out there do need to survive on and do rely on. And so I think that's an important framing exercise to realize that all of our situations are different and what applies to me, what applies to somebody else is never going to be the same.

6:23Somebody's situation could be much easier, much harder, or very, very close to the same difficulty as yours, but they're never going to be the same. So again, all this is doing is outlining my personal progress. And I am definitely very comfortable showing that even with earning a solid income, we're not talking crazy 1 % income or anything, but earning a solid income, that still seeing that kind of progress is not normal. There are many people out there my age who earn as much as I do or far more than I do that still do not grow their wealth nearly this quickly. And it's not because I'm so much more intelligent or make crazy bets or anything like that.

6:59It's just because of solid baseline decisions, things like we're going to be discussing today that gets you to that place. It feels like a very small decision up front, taking 10 minutes to do something like this, like we're going to be discussing in this episode, or setting aside 100 bucks a month or something like that into a savings account. It all feels so small up front, but three, five, 10 years down the line, trust me, that decision will have been anything but freaking small. So you may also be thinking, why does understanding where I financially stand even matter that much? I know it sounds like a good idea on paper, of course, but why does it really matter?

7:36Well, for me, the first thing is that it's motivating. And again, that's not just because I'm earning crazy high figures and income or anything like that, but it's because it's about visualizing progress and seeing its effects. And that progress doesn't have to be the fastest thing in the world. Those effects don't have to be the craziest things in the world. Just seeing that progress occurring visually, numerically, in data, on a graph, whatever, is very, very motivating for me. I want to see that upward trend. I want to see that progress. And I want to see that the things I'm doing now, those small little things, that saving a hundred bucks a month or something like that is contributing towards an upward trend of something.

8:12And the other thing that makes it motivating is that it leads into my whys of spending. I've discussed finding your whys before, but basically it's why do you want more money? Okay, cool. You want more money. We all want more money. You want to earn more. You You want to save more. You want to have a high net worth, whatever. But why do you want that? And for me, it's things like spending time with family. I'm sure that applies to the vast majority of us out there, but also being able to afford to do things with my friends and family. Things like, hey, we want to take a trip to blank. The idea of just being able to go take a trip to blank, not the most extravagant in the world, but get to that place without a second thought, that sounds amazing.

8:47Also having the flexibility to live where we want, do what we want while we're there, all within reason, having that kind of life flexibility would be incredibly freeing for me. The idea that Jen and I could just up and jet to blank without much of a second thought would be crazy and amazing, and that's the kind of situation that I'm aiming towards, and that is one of my whys. For other people in different situations, it can also be sobering to realize that, for example, taking out tens of thousands of dollars in car debt or something may not be great if your net worth isn't even that high yet.

9:21You're taking on much more risk than you may realize. You may think, taking on$15 ,000 in car debt, that's not the craziest thing in the world. And I'll be honest with you, it's not the craziest thing in the world. That's not the highest value. That's not anything like that. But if your net worth, if all of your savings combined is 12K, taking out more in just a car loan than you even have as money available to you in any way, and your total net worth probably isn't the best decision. That's probably going to put you at a much higher risk than you may realize up front. Another reason that it's important to track your financial progress over time, I feel like I keep switching between progress and progress, so I hope that's not bothering anybody, but aiming for financial freedom or retirement goal.

10:02If you're seeing retirement in the near future, if you're aiming for financial freedom, so possibly reaching a point where you don't have to work or you only work part-time, there's the FIRE community out there, financial independence, retire early, and there's a ton of options and ways to flex that to fit your lifestyle, your desired lifestyle. Aiming for something like that can be great for this because again, you're seeing progress. It's not because you have to be close to that goal already or close to that point in your life already, but just seeing progress towards it is the most important thing and it's incredibly motivating in and of itself.

10:35And then the last one is just identifying problems early. If you start tracking your net worth and you realize, hey, you know, I've been doing this for four months and I thought I was doing pretty good, but I'm seeing a downward trend on everything. Again, we're not really caring what the exact value is at this point, but you're just seeing a downward trend and you're thinking, I followed the budgeting outline. I've got some money being put away in the savings every month. I know what I'm spending or we know what my needs are and that sort of stuff. And I feel like I have my wants in check and I don't know what's happening.

11:04Well, this can be your first indicator to say, hey, you do have a problem. So you look into it and you realize, okay, I have been putting money in savings every month. And I've been thinking that these little splurges I've been making of like, okay, I'm going to spend a little bit extra this time, but I'll keep saving over time. I've got it automated. I've got the budgeting outline telling me I'm okay, so I'll be fine. And then you do the same thing four weeks from then and the same thing two and a half weeks from then. And you keep doing these little quote unquote one-off over the top purchases that in reality, you're never actually allowing your wealth to catch up for, to make up for.

11:37And so you're just putting yourself in a downward trend without even realizing it. Doing something like what I'm going to be walking through today of how to track financial progress will give you that lens to see, oh crap, okay, I'm heading in the wrong direction and what I'm doing right now is not what I need to be doing. Let's start making the changes. And again, the sooner you make that change, the more your wealth is going to be able to compound over time, the longer you're going to be able to let it grow before you're trying to reach your desired goal. All that sort of stuff is having time on your side is the most powerful thing you can do with your wealth.

12:09And identifying problems as early as possible is the key to that. So by tracking financial progress, what do I actually mean? I see two aspects to it. The first one, which we again dove into even more detail last time, but ensuring that a budget is stuck to. So the best place to keep up on both of these is monthly financial check-ins, just to kind of give you a frame of reference. So yeah, a monthly check-in is where I check in on this kind of stuff to see how my budget's been stuck to and tracking net worth over time. So to check in on a budget, I would take the budgeting spreadsheet, the budgeting outline that's available for free online.

12:45And I think a great way to go about this is to take that budgeting outline, fill it out as accurately as possible for this last month, and see, did I stick to what my previous template was? So whenever you last updated your budget to say, hey, this is what I want to be spending, saving, this is what I want to be putting towards wants or needs and that sort of stuff, and see how closely did I stick to that this last month. And again, nothing has to be dollar for dollar. Nothing has to match up line for line perfect because that's not going to be realistic. That's going to be demotivating, and that's just not worth it in the end.

13:19So we just want to see, did I get close to sticking to what my expectation was? And again, this can be a huge pivot turning point to realize, crap, I was nowhere near sticking to what my original outline was. And that can be a great guideline to say, okay, I need to turn things around in one way or another, change some things around to get to a different place. Myself, because I lean very, very heavily into automation, I do this periodically using the outline to kind of track some things. but even more often since I have my savings automated so I have my savings going to very specific places at very specific dollar amounts and then same for needs any stuff like mortgage payments utility payments that sort of stuff is all already automated and I have a very very close at least idea of what that spending is going to be that I know that when I start spending towards my wants if you love to diversify with ETFs but are overwhelmed with all the options the Plink app can help.

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16:28as long as that value isn't trending downwards over time or trending upwards, because that could also be a correction, then I know that I'm not over or underspending, quote unquote, on wants. That kind of keeps my discretionary spending in check is just checking that checking account trending over time. That's all I'm doing. If you want to fill out the spreadsheet, then I think that that is a more robust, a little bit more time intensive, but a more robust exact way to go about things. but if you're somebody who agrees with the automation doesn't want to have to touch your money or wants to touch it as little as possible then i think that that leaning heavily into automation is fantastic and that even though it takes a little bit of time to set up up front it can save you a ton of time in the back end by being confident about where your money is going and not having to check up on it or micromanage it as much then the second step to these monthly financial check-ins like i mentioned is filling out net worth and this is the one that i haven't really talked about much before, so I'm going to be going a little bit more in depth on.

17:28Now, I have a spreadsheet, as always. I know you guys are probably tired of hearing that, but I have a spreadsheet that I use to track my net worth over time. I know a lot of people, you know, I know Andrew, for example, he prefers to just track his stuff on notes. I believe Dave actually does use spreadsheets, so he's a nerd just like me. I'm going to call that right now. But regardless of how you decide to track it, you could be using Excel, Google Sheets, you could be tracking on a piece of paper over time, on a phone notes app, whatever you want to do. There are also definitely third-party apps out there that do a great job of letting you track finances over time.

18:00I would make sure that they have solid privacy in place if you're going to be putting exact values, but regardless, track it somehow. And what we really need is on the left, I have two columns. One is different accounts and their values, just a snapshot of their values. I don't personally have accounts linked to anywhere. Again, I know there are apps or programs out there that will link to your bank account so it tracks exact values over time. Again, me personally, for privacy reasons, that feels like something that I could do myself. And so I would rather avoid that sort of privacy risk for very little upside to me personally.

18:34And instead, I just track the values manually during these monthly financial check-ins. And we're talking, it takes maybe five minutes to go through the apps on my phone, open an app, there's a value, track it. So I have a column of different accounts, different savings accounts, or places where my wealth is put currently. And then the column next to it is their overall value. So for me, for example, going through some of mine, I have like savings account, a 401k, I have Roth IRA investments, I have my car value, the amount that I still owe towards that loan, all those kinds of accounts, anywhere your money is currently put, or HSA, that sort of stuff, anywhere your money is currently put, list out that account there.

19:12And another caveat here that I think is important to keep in mind is I also track past accounts on here. And this may feel a little silly because for example, I've got like a Robinhood investment account that was a taxable investing account. I had that for a little while. Eventually I rolled everything over into a Roth IRA because I saw no reason at the point to have that taxable investment account. I also have something like Fundrise, which is a platform that allows you to trade in real estate crowdfunding, essentially. Again, that was something I had money in for a while, but have since pulled it out.

19:44I still keep those accounts in there because I see this spreadsheet as an overall snapshot of where my money is or has been or could be. And being able to visualize, okay, I had money in there previously, it is just very useful for me and feels like I'm getting a much more holistic picture instead of trying to remember which accounts to remove. Oh, crap, I forgot to add that account in or whatever. I just want to throw everything in here that could possibly have a value. And then, again, putting all the values next to them. Again, if it's a previous account that doesn't have anything in there, I put zero there.

20:16If it's an account that does currently have value in there, I put the value in there. And the controversial part here is that I do track things like car value and home equity. And I count those towards net worth. There are definitely going to be many, many people out there that tell you not to do that. They say that's a horrible idea, only track stuff that is liquid cash, essentially, or investments that are easier to liquidate. And it's totally up to your discretion how you personally want to track things. The way that I see it is your net worth is cash in one way or another you could access.

20:51Now, say you have something like a savings account that you're saving up towards a long-term financial goal, saving up towards a house, retirement, whatever, and you really don't want to touch that money. I mean, you could if you needed to in dire circumstances. You're unemployed and you need money from somewhere to survive. You could pull money from that savings account. You 100 % could. And I see a car and a home the exact same way. Say you own$10 ,000 worth of car or something. You have$10 ,000 worth of equity in a vehicle. Say you're unemployed. You could sell that car, get that$10 ,000 cash, and spend that to survive.

21:26And you could buy a very cheap car for$1 ,200. bucks or take the bus or take ubers for a little while if it's going to be short term there are other ways that you could get by and you could sell that car and the same goes for a home which people are even more you know willing to include in their net worth which it feels kind of silly to me because that's even harder to get rid of but it is still something that you could get you could uh sell and turn that value into cash you take out something like a heloc which is a home equity line of credit so you could take a loan against the home equity that that you have in in the home.

22:00So the way I see things is anything that you could get cash from in one way or another should be included in your net worth, as well as that's just much more motivating for me. So for example, we recently purchased a home. If I were to take that entire down payment and just subtract that from my net worth, I would see a massive, not even downward trend, but just a sudden spike straight downwards and then trying to increase back to where I was before. And that makes me feel like I've taken some financial hit that I need to make up for. And I just don't see it that way. I see it as taking my wealth and putting it into something else, which in this case is a home.

22:35And that's all there is to it. My money is in a different place, but it's not gone. I still have access to that money in one way or another if I really, really need it to, whether I want to or not. So I keep track of all of that equity on the left side, as well as I keep separate lines on there for negative values. So for example, a car loan, you know, or sorry, car value and a car loan, say you have$10 ,000 in car value, but you still owe$3 ,000 on it. I put both of those line values in there, just have the$3 ,000 as a negative value. So that subtracts from your total net worth. The next thing to do here is once you have all those filled out or you have it all written out on a piece of notepad, on a notepad piece of paper, doesn't matter, is we add up all those values or have a formula, add up all those values and get your total net worth at a given date.

23:19Once you have that total net worth, I then have three more columns next to my account and value columns that are tracking all of my past net worths. And to me, this is where the real beauty of things is. You can find your net worth and say, I've got$50 ,000 net worth. That's fantastic. Is that going upwards? Is that going downwards? What's happening over time? So to track that trend, I have all of my past net worths from all of my monthly check-ins, which I have missed a few, I'll be completely honest with you, but all of my monthly check-ins with tracking all the dates, all the values at the time, and then the last column is tracking percent progress towards a financial goal.