The Progress Principle; Tracking Your Finances to Success

The road to financial excellence doesn’t happen overnight.  At least not for most people.  And certainly not for this guy.  Progress is made by continuously achieving small victories.  Over time, you can achieve a large goal.  That progress can sometimes feel painfully slow, but it’s amazing how time goes by, and by tracking progress you can start to see your results.

Let’s Make Some Progress

When we think about progress, we often imagine how good it feels to achieve a long-term goal or experience a major breakthrough. These big wins are great—but they are rare.

This article from the Harvard Business Review talks about the “progress principle.”  When tackling large goals of building a significant net worth or paying down a debt, it is normal to feel overwhelmed.  Making routine progress is a great way to not be discouraged.  One of the best ways to achieve this sense of progress is to track your numbers.

Progress Principle:

Of all the things that can boost emotions, motivation, and perceptions on the way to achieve a goal, the single most important is making routine progress along the way. And the more frequently people experience that sense of progress, the more likely they are to be creatively productive in the long run.

There is something that I know for certain.  When it comes to making progress in your financial life, you need to track your numbers.  If you do not have a system in place to track your assets and liabilities, you run the risk of languishing in the world of the unknown, including being unable to answer simple questions in regards to how you are doing financially.  Regardless of how well or how poor you are doing financially, if you aren’t tracking your numbers, you don’t really have your head in the game.

This Isn’t A Budget Talk

I’m not talking about tracking a budget or monitoring your expenses.  Many people might review their credit card transactions or bank statements on a monthly basis or maybe even more frequently.  But that’s not really what I’m talking about.

You need to be tracking your bigger picture.  And one of the best ways to do that is to keep a running account of your assets and liabilities.  This is how you track your net worth.  Tracking your net worth is invaluable.

Net Worth Calculations

This is not complex math.  Assets minus liabilities equals your net worth.

Assets would include: retirement accounts, bank accounts, brokerage accounts, business equity, and value of your home.

Liabilities would include: mortgage debt, consumer debt, car debt, and student loans.

Notice how your salary plays no role in your net worth calculation.  Someone who makes a million dollars a year is not necessarily a millionaire.  By the way, I wonder how many newly drafted NFL players fit into that category.  Now they certainly have a really good chance of becoming one pretty quickly if they play their cards right, but that will still take some saving, investing, and managing of expenses.

These are things most professional athletes are notoriously terrible at.

Conversely someone who makes a smaller salary could be sitting on a huge pile of money with a 7-figure net worth.  So although income is certainly important, just because you have a high or low income doesn’t dictate what type of net worth you might have.  Just remember some of my Bosses.

There is some hope for NFL players yet though.  Read here for a story on how the Redskins’ quarterback drives a dented passenger van to practice even though he makes millions a year.

Don’t Overthink This

Some people go as far as including the value of all their personal property in the asset column of their net worth balance sheet.  I personally don’t do that.  If one day I decide to sell the dining room table for some cash, I guess that windfall will be realized down the road.

In the meantime, I’m not going to bother tracking that type of asset.  In fact, I don’t include any personal property in my calculation with the exception of my primary residence. And yes, I mean I don’t include cars.  I just personally don’t care how much my car is worth.  I have never added it to my balance sheet.  It’s kind of like a big dining room table to me.  If I sell it, I will just enjoy the windfall then.  In the meantime, I will just keep using it to drive myself to work.

For those of you who track your net worth, how do you play the “car game” on the balance sheet?

Where To Track

For me, I track in two separate places.

  1. Excel spreadsheet (Old faithful).  My current sheet goes back to 2007.  If I want to know how much cash I had in August 2008, I can tell you.  Why is that important?  Perspective.  More on that later.
  2. More recently, I’ve also been using a website and application called Personal Capital. [This is not an affiliate link]. This site is really good and has saved me a lot of time over the past year.  This site links all your financial data and spits out all sort of  reports for you to review.  I would highly recommend checking it out. I have heard of some types of accounts having issues getting linked up, but in my personal experience that is very limited.  It works really well for me about 98% of the time.  Not bad for a free service.

Even with a more modern Personal Capital type of tool to track your net worth, expenses, income, and retirement planning, I still use Excel to serve as a back-up of sorts. I also know that my Excel sheet will never go out of business.

How Often Should You Look?

There is a difference between tracking your progress and obsessing over it.

When I first started tracking on an Excel sheet, I updated obsessively every month.  I would look forward to that last day of the month when I would enter in a new set of data, carefully going from website to website updating all of my numbers.  Now with Personal Capital it takes me about a third of the time to do this compared to 2007.  I’ve also streamlined which numbers I enter.  Where I used to enter every fund balance, now I just enter the total value of the account.

Currently, I’m updating about once every quarter.  I find that having just a few data points along the way for every year is good enough.  In doing this less frequent update, I have actually managed to completely miss a few small corrections in the stock market. By the time I enter in my quarterly data the small correction has fixed itself.

There are pros and cons to not doing monthly updates but I find it a good lesson at how we shouldn’t get obsessed with minor monthly swings up or down.   The quarterly trend is about as detailed a trend I need at the moment.

Besides, I have Personal Capital at my beck and call to see what is happening.

Don’t Obsess

When I first discovered personal capital I was almost obsessed with looking at all my numbers.  It was so easy.  All I had to do is pull out my phone and it would update.  After a week or two of doing this it felt like too much.  I had to take a break.

I really didn’t want to be in the habit of knowing exactly where every account landed on a daily basis – even if things were going up.  Now today, I still routinely look at Personal Capital but I’m not obsessing over it.  I also feel there are many features and charts I don’t fully utilize.  I’m hoping now that I have almost a years’ worth of data those additional features will prove more useful, specifically expense tracking.

Also the graphs are proving to be a lot of fun to look at.  (Fun ‘cause graphs are cool, right? Just me?…ok.)

Why You Should Track Your Numbers

Perspective.  I have had really good years and not so good years since tracking my numbers.  Being able to look back at where I started from really provides a sense of the bigger picture.

Also, If you aren’t tracking YOUR numbers you could easily be persuaded to believe whatever it is you hear on the news about the economy.  When you hear someone tell you how, “things are terrible” you might know different if and only if you are tracking your own net worth.

By tracking your own financial economy you can better know if what is being said is true or not.  Believe it or not, just because “things” can are terrible, it doesn’t mean that your “things” are terrible.

Thought Process.  One of the major benefits of tracking your numbers is it will teach you to really understand the impact of your decisions – from small little bills that need to get paid every month to the purchase of larger items like a car or home.  When you start to ask how this or that transaction will impact your net worth, you view it a little different.  For example, when moving from one home to the next, changing the home value and the mortgage balance from one set of numbers to a potential new set of numbers can really increase your understanding of the overall impact of one of life’s larger purchases.

Otherwise you run the risk of just listening to what the bank and real estate agent tell you what you can afford or not.  Compare this to knowing how the purchase will impact your personal net worth and the tone of the conversation changes a bit.  You are in more control.  Knowledge is power people.  Your head is in the game!

Goal Setting.  If you are tracking your numbers, you now have many great opportunities to set measurable and specific goals for yourself – whether it’s for a total net worth number, a specific account, or paying down a debt, for example.  You are now measuring progress, which in turn, allows you to focus on hitting a certain number goal.

By June I am looking at progress made towards a yearly goal set back in December to see if I’m on track.  Come October and November, I am anxiously pushing to hit my target.

One Last Note On Perspective

Below is a chart of my own net worth from 2007 to the end of 2016.  Nope, not showing you my numbers, I’m sure you guys don’t really care anyways, right?  Ha.  Anyways, look at that line.  Can you find the crash from 2008?  You have to look pretty hard, but it’s there.  My entries from July 2008 to about April 2009 were pretty bad.  But now years later it doesn’t seem like much.

The funny thing is, I  still hear around the office fairly routinely people talking about their retirement accounts not having recovered  from 2008.  Clearly they sold at the bottom.  From July 2008 to April 2017 the S&P 500 Index is up 87% – 125% with dividends reinvested.  That’s over 9% a year average return.


I’m not making light of that period of time.  I certainly worry about a future event just like that and what impacts it would have, but if anything, this chart shows that even in the darkest financial days of 2008, it ends up looking like a mere little dip on a much larger scale of progress.

Head down, ever focused, keep pushing, plugging away even when things get hard.