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Net Worth Statements – 9.159   arrow

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By N. Porter* (9/12)

Quick Facts…

  • A net worth statement is a financial snapshot that shows your financial wealth at a given point in time and provides a useful summary of your financial affairs.
  • Your net worth is the difference between your assets (what you own) minus your debts (what you owe).
  • If you prepare a net worth statement at about the same time each year, you will see how your total net worth changes from year to year. If your net worth has declined from the past year, this may tell you changes are needed for you to live within your income and provide for the future.
  • The total of your liquid assets (assets that can be quickly converted to cash) may provide information about how well prepared you are for a financial emergency or loss of income.

A net worth statement is an important financial document. It is a ‘financial snapshot’ that shows your financial wealth at a given point in time. A net worth statement provides a useful summary of your financial affairs and can measure your financial well-being.

Why should I complete a net worth statement?

A net worth statement is a tool to help you measure progress toward long-term financial goals. You may use one in different ways. It provides an inventory of your assets (what you own) and your liabilities or debts (what you owe).

If you prepare a net worth statement at about the same time each year, you will see how your total net worth changes from year to year. You will want to see if your assets are increasing and your debts are decreasing over time – that is, if you are building wealth. If your net worth has declined from the past year, this may tell you changes are needed for you to live within your income and provide for the future. Having savings, investments, and debts can make it difficult to know if you are spending more money than you have coming in. A net worth statement can help you see your total financial situation.

The estimate of the value of your home and contents may help you decide how much homeowner’s insurance you need to purchase. The total of your liquid assets (assets that can be quickly converted to cash) may provide information about how well prepared you are for a financial emergency or loss of income.

You may be asked to fill out or provide a net worth statement when you apply for a home or auto loan, or talk to an estate planner.

If your goal is to analyze your retirement savings, you may be interested in the projected future values of your investments. Your financial advisor should be able to help you estimate the value of investments at some time in the future using current values on your net worth statement.

Step 1: Calculate the value of your assets.

List all of your assets (what you own) on the net worth statement worksheet. Use the current market value or today’s dollar value for each item. This is the amount you could sell the asset for today, not what it cost when it was new.

  • The cash value of a whole life insurance policy can be found on a schedule in the policy. It is also available from your insurance agent. The cash value is the amount of money the insurance company would return to you if you terminated the policy.
  • Any bank or other vendor of U.S. Savings Bonds can tell you the current value of your bonds. You can also price them online at www.savingsbonds.com.
  • The daily values of mutual funds, stocks, and bonds are quoted each day in larger newspapers and the Wall Street Journal. Values are also available on quarterly reports. Many
    brokerage firms post share and fund prices on their Web site and are accessible with your personal identification number (PIN).
  • Annuity values are available in annual reports or quarterly statements, or from your broker or Net Worth Statements insurance agent. Human resource officers at places of employment should be able to tell you the amount you have contributed to your pension, 401(k), 403(b), or 457 plan(s).
  • Car values are published by the National Automobile Dealers Association and by Kelly Blue Book. These publications are available in most libraries, at car dealerships, and at lending institutions. You can also find sites on the Internet that list auto values.
  • Estimate the value of household furnishings and appliances by using information from second-hand shops and from classified ads. Use conservative estimates because it is not always easy to sell used possessions.
  • The value of collections, jewelry, furs, and guns can be estimated by dealers.

 

Ideas to Increase Your Net Worth

  • Cut back on spending.
  • Increase savings.
  • Increase contributions to retirement accounts.
  • Pay off debts.

Step 2: Calculate your liabilities.

List all of your debts or liabilities (what you owe) on the net worth statement worksheet. Use the most up-to-date amounts.

  • The balance owed on installment debts or credit cards is listed on monthly statements. If not, the balance can be obtained from the creditor. The principal owed on a mortgage or real estate loan is available from the mortgage lender. Remember to also list second mortgages or home equity credit line loans.

Step 3. Subtract the value of your liabilities from the value of your assets to determine your net worth.

Step 4. Monitor your net worth annually.

Complete another net worth statement worksheet in about one year and compare the two statements. Completing one each year at about the same time will help you monitor your financial well-being.

Recommended Financial Benchmarks

If you are comparing yourself to recommended financial benchmarks, consider one suggestion from the book, The Millionaire Next Door. Authors Stanley and Danko (1996) suggest that your net worth should be the figure that results when you multiply your age times your gross income (from all sources) and divide by ten. For example, a 40-year-old with $40,000 in gross annual income should have a net worth of $160,000.

40 X $40,000 = $1,600,000 ÷ 10 = $160,000

 

Net Worth Statement Worksheet

Personal Property: (Current Value)

Assets (What You Own) Liabilities (What You Owe)
Cash: Current Debts:
     Cash On Hand      Household
     Checking Accounts      Medical or Other Current Bills
     Savings Accounts      Credit Cards
     Money Market Funds      Department Store/Gas Cards
     Cash Value of Life Insurance      Loan on Cash Value Life Insurance
     Other      Legal
     Taxes Due or Back Taxes
     Other
Real Estate/Property: Mortgages:
     Home(s)      Home(s)
     Land      Land
     Other      Other
Investments: (Current Value) Loans:
     Certificates of Deposit (CDs)      Bank/Finance Company
     Savings Bonds      Bank/Finance Company
     Stocks      Education/Student Loan(s)
     Municipal Bonds
     Corporate Bonds
     Government Securities
     Mutual Funds
     Annuities
     IRAs, Roth IRAs
     401(k), 403(b), 457 Plans
     Pension Plan(s)
     Ownership in Business      Business Loans
     Loans Owed to You      Personal (from family or friends)
     Other
     Automobile(s)      Automobile Loan(s)
     Recreational Vehicle/Boat      Recreational Vehicle/Boat Loan
     Household Furnishings      Pledges: Charities, Religious
     Appliances/Furniture
     Collectables      Other
     Jewelry/Furs/Guns      Other
     Other      Other
Total Assets Total Liabilities

Total Assets $__________ – Total Liabilities $__________ = Net Worth $ __________

*N. Porter, Colorado State University Extension specialist, financial resource management. 9/12

Adapted for Colorado by Nancy M. Porter, in part from ‘Net Worth Statement Instructions’ and ‘Net Worth Statement Worksheet’, by Dena Wise, University of Tennessee Extension.

Colorado State University, U.S. Department of Agriculture and Colorado counties cooperating. CSU Extension programs are available to all without discrimination. No endorsement of products mentioned is intended nor is criticism implied of products not mentioned.

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