How to Track Your Crypto Net Worth
Do you know how much your net worth is?
Keeping track of your net worth can provide valuable insight into your progress in achieving financial security. Knowing where you are and where you want to help keep your finances in check and gives you an idea of what changes must be made to ensure you reach your long-term goals.
Tracking and monitoring this figure regularly allows for better money management and can help prevent costly mistakes. In this article, we will discuss why tracking your net worth is crucial and the steps involved in doing so.
What Is Net Worth Exactly?
Net worth is a great way to get an overview of your financial situation. It is simply a figure calculated by taking all of your assets, including investments and other property, then subtracting any debts or liabilities you may have.
Your calculation should give you a real understanding of where you stand financially; it provides insight into your financial health and what the future might hold for you.
Understanding your net worth can be incredibly empowering, helping you make decisions on improving and taking control of your overall financial picture. By understanding this key metric, you gain the knowledge necessary to protect and grow your resources and watch your financial freedom become more secure.
Calculating your net worth is a relatively straightforward process. First, you must add up your assets, including any investments and property value.
Assets are anything that can be converted into cash. This includes bank accounts, real estate, 401(k) plans, stocks and bonds, 529 college savings plans, mutual funds, and more.
Once you have calculated your asset total, subtract any debts or liabilities from the total. This includes any credit card debt, student loans, car loans, and the like. The difference between the two numbers is your net worth.
Know Your Assets
When calculating your net worth, you must consider all the different types of assets you have. An asset can include tangible and intangible items such as real estate, vehicles, investments, life insurance policies, etc.
But! You can also include alternative investments. These investment strategies can encompass anything with a resale value that will get you what you paid for it or even provide a return. It can be anything from firearms to watches to artwork.
Some people even take an extra step and break their assets down in liquid and illiquid. A liquid asset is typically anything that can be turned into cash in under 30 days. If it takes more than a month to get your money back, it’s likely an illiquid asset.
Next, when it comes to real estate, there are two schools of thought. Both schools agree that investment properties should be added to your net worth. Where they differ is if you should add your personal residence to this calculation.
The first school feels it’s acceptable to add the equity from your residence. If your home is worth $300,000, and you have $150,000 in equity, then you add that equity to your net worth and subtract the other half because it goes into the liability column. In this scenario, you would add $0, because your equity equals your debt.
The second school of thought feels your personal residence is always a liability, no matter how much equity is in the home. Here’s why: It doesn’t make you money. By the time you factor in maintenance and repairs, personal property taxes, renovations, as well as fees and costs of buying and selling, you’ll be lucky to break even.
So it belongs in the same category as a vehicle. It’s a liability. However, it’s one that most people need to be able to live the way they want.
Understanding The Effects Of Liabilities On Your Assets And Net Worth
Understanding how liabilities can affect your assets and net worth is a requirement for mastering your financial tracking skills. Liabilities include anything that requires you to make payments, such as mortgages, car loans, and credit cards.
These will reduce the total value of your assets and, in turn, lower your overall net worth. If you want to increase your net worth, paying down any debt or liabilities is a massive part of the game.
Why Should You Track Your Net Worth?
Knowing your net worth is a great way to stay on top of your financial health. Tracking this figure over time will give you the insight you need to make informed decisions about how to achieve future financial goals.
Do you want to retire early? Do you want to spend more time traveling or want to move to another country permanently? Every factor about how you live now compared to how you want to live will change how you view your finances and goals.
It helps understand what areas of spending, such as investing and debt repayment, need more attention. You can also use it as a benchmark for yourself; if your net worth increases each month, quarter, or year, you’re doing something right!
An accurate view of where you stand financially gives you confidence in knowing what steps you should take now and in the future to secure your financial health.
The First Step Is to Gather Accurate Information
To calculate your net worth, gather all of the necessary information about your assets and liabilities. The best way to do this is by collecting documents such as bank statements, investment accounts, credit card statements, and property values.
You should also make sure everything is up-to-date in case any changes have occurred since your last calculation.
Use Tracking Tools - Free or Premium
Once you have calculated your net worth and understand how it is affected by assets, liabilities, and other factors, you can use tracking tools to monitor your progress over time.
Many online budgeting tools have built-in net worth calculators that can be used to see your progress and make informed decisions about how to grow your wealth.
If you’re feeling ambitious, some tracking tools offer the ability to set savings goals and track investments to maximize your net worth potential.
Don’t Be Scared to Make Changes
After tracking for a while, it’s a good idea to occasionally review and make any necessary adjustments to reach your financial goals. If you’re looking to increase your net worth, look for ways to reduce liabilities and increase assets.
This could be repaying debt or investing in stocks, real estate, or other forms of investments. You may also consider shifting funds from one asset class to another to optimize returns.
If you want to retire early, you may need a part-time job or side hustle to make extra cash. If being a digital nomad is your thing, you may want to focus more on having a large emergency fund to cover expenses when you first start.
Everyone is different, and every situation is unique. Do what’s best for you. Cookie-cutter advice is probably not going to work.
Identify Sources of Income and Expenses
A key component in managing your financial health is identifying sources of income and expenses. It will give you a better idea of where your money is coming from and how much you’re spending and help you to create a budget that allows for savings and investment.
Keeping track of your income and expenses can help determine if any areas need to be cut back or adjusted to increase your net worth.
One of the biggest net worth killers is known as lifestyle creep. It occurs when you spend more money as you make more. You’ll want to be especially vigilant in avoiding lifestyle creep if increasing net worth is your overall goal. Speaking of goals…
Set Reasonable Financial Goals
Once you understand your net worth and sources of income, set reasonable financial goals.
These can be short-term or long-term goals to increase net worth and achieve overall financial security.
Consider breaking down each goal into smaller steps that are easier to achieve. This will help you stay on track and progress toward your end game.
Some examples include:
Increase income by 5% year over year
Set goals for budgeting and find ways to cut unnecessary expenses
Find ways to increase monthly savings rates
Seek Professional Advice When Necessary
If you’re feeling overwhelmed or need additional guidance, find professional advice from a certified financial planner or accountant.
They can help you create a plan to reach your goals and provide valuable insight into the best practices for managing your net worth. The more your financial goals are “inside the box”, the more these traditional methods can benefit you.
But if you want to go with something a bit more alternative, you may have to take some serious risks. However, some of the biggest risks can yield the most significant returns.
How to Grow Your Net Worth With Crypto
In recent years, cryptocurrency has emerged as a valuable asset class and a viable option for investing and growing your net worth. Cryptocurrency can be used to purchase goods, store value, or trade on exchanges.
While the risks are high due to the volatile nature of crypto markets, there are also opportunities for sizable returns when done correctly.
If you want to dive into this world, you’ll need to do more research and due diligence than with tradfi. Proper DD includes learning about blockchain technology, different types of cryptocurrencies, exchanges, and wallets.
Researching crypto-related news and keeping track of market prices can also help better understand the asset class as a whole.
When first starting out with cryptocurrency, it’s essential to start small and understand the risks associated with investing in crypto. Don’t put all your eggs in one basket - diversify your portfolio by investing in different coins and tokens across various exchanges.
Use a Dashboard
Use reliable research and analysis tools to understand market trends and prices. This will help you make more informed decisions when purchasing or selling coins and tokens.
One of the biggest problems as a new crypto investor is the plethora of information that’s out there. Not only is there way too much, but it’s hard to sort through the legit from the bogus. Having a crypto dashboard at your fingertips can be a huge help.
Alphaday is a beginner-friendly tool that offers basic charting tools and curates the best tweets, podcasts, and YouTube videos so you can learn and research quickly. It will save dozens of hours of your precious time, especially in the beginning.
Automation Is Worth a Look
Trading bots can be a great way to automate your trading and make more informed decisions when investing in crypto.
The bots can help analyze data, track market trends, and even execute trades for you. Of course, it’s important to understand how bots work and the risks associated with using them before investing.
The Bottom Line
Tracking your net worth is an essential part of financial planning and budgeting. It allows you to understand where you stand financially, set realistic goals, and make more informed decisions about investing.
Whether you want to grow your wealth with cryptocurrency or traditional assets, understanding finance basics can help guide you in the right direction.
With a bit of knowledge and effort, tracking your net worth will put you on track toward achieving greater financial security for yourself and future generations.