Friday Finances – Net Worth Statement

Welcome to the fifth installment in our financial discussion. If you’re just joining us, be sure to check out one (Values), two (Financial Goals), three & four (factors affecting finances).

Financial plans are as unique as each individual/family. Financial plans should also change as life changes. My husband’s financial plan is different today than it was 5 years ago when we were both still undergrads in college.

I hope these pictures will help break up the post!

There are three basic options for a financial plan:

  1. Hire a professional. Basically paying someone else to help you make decisions – of course their education helps…
  2. Do it yourself. Obviously you’d save money… but it can be time consuming and you may lack the knowledge of how to keep your own records. In the next few weeks, I’ll hopefully be addressing some of these issues.
  3. Do nothing. Just spend and hope you have money… probably not the best idea. Okay, definitely not a good idea, please do not choose this option!

I fit in number 2. My husband and I do our finances ourselves. He has developed spreadsheets that help us know where we are financially as well as one that tracks all our accounts.

I’m not going to be discussing everything about financial plans today… that would make all of us (including me!) fall asleep or want to run far, far away. Today I’m going to be discussing a Financial Net-worth Statement.

A very formal net worth statement would have a title and the person’s name who it is created for. For your own records, you can choose to have them or not. Now for the important items on a Net-Worth Statement:

  1. Date – when is this snapshot of your net-worth?
  2. Your Assets
  3. Your Liabilities
  4. Calculation of Net worth (basically your assets minus your liabilities.)
We’re going to discuss those categories (minus the date, I think that is pretty self-explanatory…)
First, Assets:
  • Monetary or Liquid Assets – Basically Cash on hand and in your bank accounts (do not count long term savings – only accounts you take money out of each month.)
  • Tangible Assets – These are actual items such as your house, car, appliances, etc. To find out the value of your car you can use kelly blue book or other such sites (don’t use high amounts, if in doubt err on the side of it being not worth as much), and for appliances – think of what you could sell them for at a yard sale.
  • Investment Assets – These are for future maintenance. Count long term savings, 401-K, and any investments you may have.
Next on to Liabilities… or a fancy term for debts. I think liabilities sounds a bit better than debt, but maybe that’s just me! Just a note on calculating liabilities – you do not count your monthly payment but the WHOLE amount owed. So the pay-off amount (you do not include interest that will be accrued while paying it off.)
  • Short-Term – anything that can be paid off within one year (you can change this definition to suit your needs better, you can decrease it to say, 6 months or increase it to 2 years…)
  • Long -Term – Anything that is out form a year (or your personal definition). This would include home, student loans, some auto loans, and any other loan that takes longer than a year to pay off.
So now that I’ve explained all the parts of the Net Worth Statement, I’ll turn you loose and let you make your own from scratch…
Let me know how it goes!
I really wouldn’t do that to you, I love ya too much! I’ve created a pretty basic one that you can get to by clicking on this link. All the equations are there you just have to enter the numbers in (pretty fool proof – just don’t type over the bolded zeros…)
And here’s an example statement…
So this person has a Net Worth of 26,595 as of this month. It is wise to do a Net Worth Statement every year so you can see of your Net Worth is increasing (that’s what we want) or decreasing (not so happy).
So your assignment today is to figure out your own net worth.
Also keep tracking your expenditures (see the end of this post) because we’re about ready to discuss budgets!

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