The 1 Change That Dramatically Boosted My Savings Last Year

This change supercharged my savings, and it could do the same for yours.

I'm going to share a brutally honest confession: For much of my adult life, I was terrible at saving money.

I didn't have any sort of system. My strategy basically consisted of seeing if I had extra money each month. If so, I'd send it over to either a savings or an investment account.

At the beginning of last year, I decided to get more serious about my financial situation. And although I adjusted the way I did a lot of things, it all grew from one change I made. What was this amazing change that helped me so much? I made a habit of tracking my net worth.

What is net worth?

Your net worth is all your assets minus your liabilities. For example, if you have $10,000 saved in your bank accounts, $40,000 in your retirement accounts, and $20,000 of student loans to pay off, then you'd have $50,000 in assets and $20,000 in debt, for a net worth of $30,000.

This can be one of the most useful measurements of your financial health, but only if you review yours regularly. It doesn't tell you much if you calculate that you have a net worth of $1 million. That could be excellent, if your net worth five years ago was $500,000. It would be a bad sign if your net worth five years ago was $3 million.

By tracking your net worth and determining if it has increased or decreased, you can figure out if your finances are improving or getting worse. However, to be fair, there are situations when this isn't 100% accurate. If your net worth drops because the stock market took a hit, that's probably not a cause for concern. But for the most part, net worth is a solid gauge of your financial situation.

How tracking my net worth helped me save more

There were two ways tracking my net worth helped me: It encouraged me to set goals, and it served as motivation.

In the past, I had calculated my net worth on a couple of occasions. But it was just out of curiosity, and I never did anything with the information. Last year was the first time that I calculated how much I could realistically increase my net worth if I focused on raising my income and saving diligently.

At the beginning of the year, I set monthly goals for my income, expenses, savings, and investment account contributions. Using that information, I ran the numbers on how much my net worth would be in three months, six months, and one year. The rest of the year, I checked my net worth monthly to see if I was staying on track.

The biggest difference this made was that I became more conscious about the long-term impact of my spending decisions and started prioritizing my savings. When I was tempted to overspend, I'd think how the short-term gratification would affect my goals. I'd miss my savings target for the month, meaning I wouldn't be on track for the net worth I wanted to reach.

How to use net worth tracking to boost your savings

If you want to use net worth tracking to help you save more money, here's how to do it:

Calculate your current net worth: Add the value of your assets and subtract your liabilities. The assets you include are up to you. For example, some people include vehicles in their net worth, whereas others don't because of how quickly vehicle values can depreciate. What's important is that you use the same method every time you calculate your net worth.

There are several financial apps that can calculate your net worth for you, including:

• Personal Capital
• Mint
• Whole
• You Need a Budget (YNAB)

Set your goals: Use your income (or an estimate if your income fluctuates) and expenses to determine how much you could save per month. Remember to allow yourself some money for discretionary expenses as well. Your monthly savings target should be enough to challenge you, but it shouldn’t be so high that you can never enjoy yourself.

With this monthly target, you can figure out a net worth goal for each quarter.

Check your net worth every month: To ensure you're staying on track for your goals, you should review your net worth regularly. The more you calculate your net worth, the easier and faster the process gets. Or you can use one of the apps mentioned above to make things even simpler.

There are plenty of methods you can use to grow your savings, and it's all about finding the strategies that work best for you. If you're goal-oriented and you like to challenge yourself, then tracking your net worth could do the trick.