A statement of net worth is a fancy term for finding out the value of all your stuff. The formula for calculating net worth goes like this; assets – liabilities = net worth… simple, right?
Okay… maybe easier said than done, but trust me… the process of building your own personal statement of net worth really isn’t so tough. The biggest challenge is just getting started. But I think you’ll find once you get going, you’ll be finished before you know it and one step closer to being in better financial health.
Here’s how you make it happen. Write out all of your assets. Assets are things like cash, stocks, bonds, mutual funds, retirement accounts and the like. These are your liquid and investment assets. Assets also are things you own; such as your car, motorcycle, jewelry, house and so on. These are personal property assets.
Once you have your list of assets completed, place a dollar value next to each item. The next step is adding it all up. The total number is your assets.
Now let’s find out your liabilities. Liabilities are debts and/or money you owe. Begin by making a list of all your debt. List all of your credit cards and the balances owed. List your car loan balances, motorcycle loan balances, and any other debt you might have (i.e., furniture loans, etc).
Once you’ve completed that list, add it all up. The total number is your liabilities.
Now… drum roll please. Subtract your liabilities from your assets. This number is your net worth.
Now you have a guide to see your strengths or weaknesses or both with your personal finances. Moreover, your net worth statement helps you plot progress from time period to time period. Example: compare your net worth statement this year to a revised net worth statement next year… is it better? Is it worse?
Now you have a tool to begin monitoring your own financial progress as you build personal wealth.
Next, let’s create a statement of cash flow.