How Much are You Worth?
You’ve set your financial goals, but do you know how far you have to go to reach them? And how will you know when you’ve made it? A net worth statement will tell you.
Do you want to be a millionaire? A billionaire? Or do you just want enough so you can retire comfortably? Regardless of what your goal is or how you intend to reach it, you should know your net worth. This information lets you know where you’re starting from and helps you measure your progress. If you’re going to be in control of your financial future, you need to know where you are today.
Basically, your net worth is your total assets minus your total liabilities. It has nothing to do with lifestyle or appearances. If you are managing your finances and investing wisely, it’s entirely possible for you to have a higher net worth than someone living a far more luxurious lifestyle. In fact, it’s not uncommon for people who live quite modestly to have a significantly higher net worth than some people who choose to live lavishly.
A net worth statement is snapshot of your current financial situation and can help you decide where you should concentrate your financial planning efforts. Complete a net worth statement at least once a year so that you know where you stand and have reasonably current information available should you need it. For example, there may be times when you’ll need a personal financial statement to support applications for loans, insurance, and other reasons, and your net worth statement gives you most of the information you need to complete that document.
For purposes of net worth calculation, you don’t need to distinguish between types of assets and liabilities. However, for your own financial management and planning, you need to be aware of the difference between liquid and non-liquid assets, as well as immediate liabilities and long-term debt. Liquid assets are cash or something of significant value that can be sold or other wise turned into cash quickly. Non-liquid assets are accounts or other items of significant value that cannot be sold quickly, or if they are, would be subject to penalty. Immediate liabilities are debts you must repay within two years, such as automobile loans and credit cards. Long-term debt is payable over a longer period and typically includes financing on real estate and business loans.
Allow yourself plenty of time to complete your first net worth statement. Most people have more assets than they realize and you may forget to list at least a few of them the first time through. If you have a lot of debt—particularly credit card debt and obligations for money borrowed for depreciating assets—you may find this exercise depressing and frustrating. Just remember that knowing where you are is a key part of getting where you want to be.
Comments
can you provide me with a good net worth form?? thanks
Posted by: maria-elena millan | March 24, 2008 07:54 PM
You can do a search on the internet for "net worth statement" and find a number of sample forms that will work. Be sure the form you use has at least these items:
Assets
Cash in personal bank accounts (checking, savings, money market)
Certificates of deposit, bonds, money market mutual funds, etc.
Stocks and stock market mutual funds
Total Liquid Assets
Personal real estate (home, vacation home)
Real estate investments
Business interests (company ownership or partial ownership)
Retirement plan investments
Cash value of life insurance
Personal property (resale value)
Other assets
Total Non-liquid Assets
Total Assets
Liabilities
Automobile loans
Student loans
Credit card balances
Other short-term loans
Current bills and obligations
Total Immediate Liabilities
Mortgages
Other long-term debt
Total Long-term Liabilities
Total Liabilities
Net Worth (total assets minus total liabilities)
Posted by: Jackie | March 25, 2008 05:13 AM