Often your net worth is called for by a lender in the form of a Personal Financial Statement. Net Worth is the total value of what you have (your assets) minus the value of what you owe (your liabilities).

Your Assets

Your assets generally include cash, bank accounts, investments, property owned and other property of value. Don’t overlook the key components of your assets:

• Cash- cash includes funds in your checking, savings, money market accounts, CDs, Treasury Bills and cash values in your life insurance policies.
• Investments- include stocks, bonds, mutual funds, retirement plans (e.g. 401(k)), IRAs, annuities, employee stock options and loans to individuals or businesses.
• Personal Property- includes collectibles such as art, stamps, antiques, coins, or guns- these may increase in value over time. Also include other property such as autos, boats, electronic equipment, musical instruments and household furnishings which may depreciate over time.
• Real Estate- includes your home, vacation home, rental property owned and land.

Your Liabilities

Your liabilities generally include debts you owe on loans, outstanding credit card balances, mortgages, leases, alimony and child support. Be sure to account for all the money you owe others both short term and long term:

• Short term liabilities- credit card balances, monthly bills, taxes, insurance and installment loans owed within the next twelve months.
• Long term liabilities- loans you may repay over many years such as mortgages, second mortgages, student loans, contracts for deed or other long term obligations.

NET WORTH IS THE FIRST STEP

When establishing a financial plan for you or your family a “first step” is usually to take a look at a personal financial balance sheet or your Net Worth. You’ll quickly get a picture of what you have, what you owe and what the net balance is of each.

Examining the components of your assets and liabilities and making projections of their individual values into the future can be helpful in forecasting your financial future and your retirement needs.

Accurately recalculating your net worth every six months to a year will give you a track record of how your wealth is growing or declining over time.

NECESSARY STEP WHEN BORROWING

Presenting Your Net Worth or a Personal Financial Statement will generally be required by:

• Banks- when applying for a mortgage or a home equity line of credit
• Universities and colleges- when applying for financial aid
• Investment Institutions- When investing in high risk instruments
• Sellers- when buying a business or other asset with seller financing
• Clubs and partnerships- where financial obligations are involved