How To Know Your Net Worth | Personal Finance | Home Budget
You have already taken the first step in developing a money management plan by reading the previous section. You will also need to determine "where you stand" overall by preparing a net worth statement.
The net worth statement is the best indicator of your financial position at a particular point in time. It will help you determine the progress toward your own financial goals.
What is Net Worth ?
Net-worth is the amount you get when you subtract everything you OWE from everything you OWN.
This information can also be useful when you:
- apply for a loan
- write your will
- borrow money
- determine insurance needs
- settle a divorce
The third worksheet with this lesson is a net worth page. Use it to figure your total financial worth at this moment. List all of your assets --- the things you own. Next list all of your liabilities --- the amounts you still owe.
What Are Your Assets ?
Assets are any financial or material possessions that have monetary value. Remember these must be valued at the current market value; not what you paid for them, or what you "hope" they are worth.
Assets are any financial or material possessions that have monetary value.
It include things such as:
- Cash on hand or In savings accounts (including certificates of deposit or checking accounts)
- Stocks, bonds, mutual funds
- Cash (not face) value of life insurance
- Money others owe to you
- Annuities, retirement plans
- Employee benefits such as company stocks
- Your home
- Other real estate, business interests
- Automobile, trucks, other vehicles
- Household furnishings, antiques, jewelry, books, coins, artworks, etc.
What Are Your Liabilities ?
Liabilities are the financial obligations or debts you owe to other persons or institutions.
It include things such as:
- Installment loans (cash, auto etc.)
- Department store and credit card debts
- Unpaid bills (medical, utilities etc.)
- Any other liabilities
Total your assets and your liabilities. Subtract the liabilities from the assets. The result == Your Financial Net Worth.
Now that you have taken the time to calculate these , how do you feel about your financial situation ? Happy?, Relieved?, Discouraged?
If you are a bit discouraged, do realize that a negative net worth statement may easily happen to someone just starting out on their own or to young families. Just as a photograph shows how you looked at one specific time, so too, the net worth statement reflects your financial situation at only one point in time. It should be revised at least once a year or as your financial situation changes.
If you are not satisfied with your net worth and want it to grow, you will want to develop a plan to increase it. More income, less living expenses, and/ or more investment growth are some alternatives.
To increase your savings you may have to cut spending in some areas. Make sure that your savings and investments are yielding the best financial return for your situation. You may want to reduce your present debt level by making regular payments and not adding any other debts.
If you are like most people, your overall goal will be to increase your net worth each year. Developing a financial plan means taking control of what you have now and disciplining yourself to manage your money to reach those goals you have set for yourself and your family.
For the best overall picture of your finances, realize that it is best to keep income and expense records for a whole year.
- Net-worth is the amount you get when you subtract everything you OWE from everything you OWN. The net worth statement is the best indicator of your financial position at a particular point in time.
- Assets are any financial or material possessions that have monetary value. While Liabilities are the financial obligations or debts you owe to other persons or institutions.
- For the best overall picture of your finances, it is best to keep income and expense records for a whole year.