Track Your Freedom Number

August 1, 2023

The most important metric you can track if you want to achieve financial freedom:

Your Net Worth.

This is the number that will signal to you when you can stop working.

It’s the measurement for how much of your time you “own”.

But tracking a net worth in the beginning stages can be discouraging.

The first time I calculated my net worth it was negative.

I was far from any form of financial freedom.

But it was also motivating.

I hated seeing that number negative.

So I decreased my spending and aggressively asked for raises and bonuses.

This increased my savings rate and less than 12 months later I watched that number go from negative to positive for the first time.

So how did I calculate it?

In a very simple excel spreadsheet.

The formula is simple:

Assets – Liabilities = Net Worth

Assets

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1. Cash

Under the cash category you will include:

  • Checking accounts
  • Savings accounts
  • Physical cash on hand

2. Investment Accounts

This is anywhere you hold stocks, bonds, mutual funds, ETFs, crypto, etc.

You will include:

  • Individual and/or joint brokerage accounts
  • IRA, Roth IRA
  • 401k, 403b, 457
  • HSA
  • SEP IRA, Solo 401k, SIMPLE IRA

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Now comes the less “liquid” (how quickly you can convert the asset to cash) assets.

3. Property

You will include:

  • House
  • Car
  • Furniture
  • Jewelry

I can hear the uproar already..

Your house isn’t an asset! Your car isn’t an asset!

Technically, both your house and your car are assets.

But if they aren’t relevant you do not need to include them.

What do I mean by relevant?

The solution lies in the question:

Why are you tracking your net worth?

If you’re tracking because you want to know when you’ve hit financial freedom, your house and your car won’t be much help here.

Tracking for your freedom number means you should only include assets that will generate income for you:

Stocks, bonds, real estate property, etc.

You'll find it hard to squeeze income from your car.

Another solution is to track two net worth statements.

One net worth represents your freedom number.

While the other net worth represents what you're "worth dead".

A fun phrase people sometimes use to describe a net worth that includes all assets.

Now, to the next part of the equation:

Liabilities.

This part is simple.

If you owe money to someone, you must include it here:

  • Mortgage
  • Car loans
  • Student loans
  • Personal loans
  • Credit card debt
  • Medical bills

Now, all that’s left to do is add it up.

Total your assets.

Total your liabilities.

Assets – Liabilities = Your Net Worth

Keep an eye out on Twitter for an upcoming thread showing how I set up my Net Worth in excel.