A net worth statement is how much money you are worth right now; it is the cash value of what you own minus how much money you owe. As a Financial Advisor, I recommend everyone do a net worth statement once a year, and the first week of January is a good time to start.
All you need is a pencil and paper and your financial records. I summarize client data on an Excel spreadsheet which does the math for you.
On the left hand side of the page, put down all your assets – Cash, Investments, Retirement Accounts, Real Estate, Household Contents, Automobiles, Value of Business Interests, and anything else you own that has monetary value. If someone owes you money, put it down. If you have a Stamp Collection, put down your estimated value of the collection. We want to list the value of everything you own.
On the right hand side, list everything you owe: Mortgage, Car Loan, Credit Cards Debt (only if you carry a balance; leave blank if you pay off your credit card each month); Student Loans, Personal Loans and any other money you owe anyone. On this side of the ledger, we want a comprehensive total of all the money you owe.
Add the Assets and subtract the total Liabilities, and you have your Net Worth Statement.
A big caution here: the net worth figure probably does not represent the amount of money you will walk away with if you cash in everything. The amount realized from the sale of your Home will be less because you have to pay a commission on the sale. You probably overvalued the cash price of your Automobile. Investment Accounts contain capital gains that will be taxed. The money in Retirement Accounts will be taxed as income when taken out. Your Household Contents will be worth more to you than to someone else.
The goal of this exercise is to establish a baseline value for your Assets and Liabilities at the start of 2012 and then compare your 2012 Net Worth to your Net Worth at the beginning of 2013 and every year thereafter. This is a great way to monitor your overall financial progress.
Note: Copy of Excel Spread Sheet available – just ask.