Using and Understanding a Net Worth Statement

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Do you know your net worth? Your net worth statement is a snapshot of your financial health. Like a company balance sheet, a net worth statement lists all your assets and liabilities, giving you a single number that represents your financial situation at that moment in time. What Does Your Net Worth Tell You? The…

Do you know your net worth? Your net worth statement is a snapshot of your financial health. Like a company balance sheet, a net worth statement lists all your assets and liabilities, giving you a single number that represents your financial situation at that moment in time.

What Does Your Net Worth Tell You?

The good thing about a net worth statement is that it gives you an idea of how your wealth or debts are distributed. This information is useful in creating a financial plan or understanding more about your financial health. But your net worth statement doesn’t reflect everything about your financial situation. It’s important to look at other factors such as your cash flow, debt, employment situation, and more. We’ll cover some more of these topics in later articles.

What is in a Net Worth Statement?

The goal of a net worth statement is to accurately list all of your major assets and debts and create a personal balance statement, much like you would if you were looking at a company’s books. Before you get too far into it, we should clarify which assets to list. We are only interested in assets that have cash value or can be easily converted to cash. So you would include savings accounts, retirement accounts, investments, real estate*, valuable personal property, and similar items. You wouldn’t include items such as your clothing, furniture, DVD collection, video games, etc.

*Should you include cars and houses in net worth statements? Some people prefer to include major items such as their primary residence or cars, while others prefer not to include these items. You can choose to create your net worth statement however you wish – just make sure that you are consistent in your measurements if you are tracking your net worth over time.

How to Create a Net Worth Statement

Start with a master account list. The first thing you need to create your net worth statement is an accurate list of all your financial accounts and how much money is associated with each account. Hopefully you have a master account list, which will help you know where your money is located and how to access it. Next, we list everything and add it up.

Net Worth = Assets – Liabilities

List your assets. Now that we know what we are looking for, we need to go through our master financial account list and add up all assets from the accounts on the list.  You can record them on a sheet of paper, on a spreadsheet, or by using your favorite financial management program.

Next, do the same with your liabilities. Then we will add up all your assets and subtract your total liabilities from your assets. This will give us our net worth. A positive value means you have a positive net worth, and a negative value means you have some work to do.

Tracking Net Worth Over Time

As we mentioned earlier, a net worth statement is simply a snapshot in time, and it changes as you earn money, spend money, investment values increase or decrease, you repay debt, etc. Tracking your net worth can be a good way to visualize how the total value of your accounts has changed over time.

This can easily be tracked in a simple spreadsheet or with a money management software program such as Quicken, or one of the many free online money programs.

My current favorite free money management app is Personal Capital, which combines the power of Quicken with the online capabilities of See how compares to Personal Capital.

Using Net Worth as a Tool to Understand Financial Health

Your net worth is an important number, but be careful not to place too much emphasis on it because there can be more important factors affecting your financial health. Your net worth is simply a tool that can be useful when it is used in conjunction with other financial tools, such as a cash flow statement, debt analysis, and a financial risk test (all of which will be covered in future articles). We will use these tools to help you gather a more complete picture of your financial health and hopefully help you apply these principles to find areas for improvement in your financial situation.

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Financial Samurai says

    Ryan, I firmly believe that everybody’s net worth is an ILLUSION if the use the traditional way to calculate net worth.

    The only thing that is real is the cash in your bank account. Your 401k, pension, property, nothing else counts unless the house is paid off, and your investments are converted to cash.



  2. Robert says

    Good points in this article. I agree with the author, it is important to know your networth or balance sheet. Companies must do it for account purposes so it make sense that individuals should do it.

    Personally, I think you should add in your home. For a lot of families, that is a substantial asset, just like if a company owned the building it was in. I am not especially interested in cars being on there, but of course if you are making payments that would need to show up on the debt section of the worksheet.

  3. aa7596 says

    Yeah, I agree that you should include your home, in addition to the 401k, IRA, etc. The whole point of the exercise is to sum the entirety of your assets and liabilities, not just look at your bank statement.

    That said, one should bear in mind that certain assets have built-in costs associated with them: the 401k will incur taxes upon withdrawal, the home may require a real-estate agent in order to sell it, and so on.

    • Ryan says

      Great response, aa7596. The assets are yours, but there may be barriers to accessing them immediately. I don’t think excluding them completely from your net worth is a good idea. There are times when this information is absolutely necessary to your financial picture. The mots evident example would be when considering retirement. You need to know how much money you have in your retirement accounts and other investments to help determine what kind of retirement you can expect, or even whether or not you can afford to retire.

  4. Eric says

    I think a net worth breakout between current and long term assets and liabilities is important to cover what both aa7596 and Financial Samurai are talking about. Like a corporation, you need to know that you can cover your current (I use a 1-3 month time frame) obligations. Knowing the big picture on your long term obligations helps you plan out future spending and saving strategies.

    I use two main tools to create a monthly “personal balance sheet.” I stop by Net Worth IQ to keep a trend of my total net worth running, and I use for a snapshot.

    I wrote a step by step break down on easily putting together a . personal balance sheet. I wrote that as part of a series on personal financial statements. I hope you find those tools useful.

    • Ryan says

      Eric, great comment. Net Worth IQ and are both great sites. By the way, tomorrow’s article is about creating a cash flow statement. 🙂

      • Eric says

        It seems like we have had similar inspirations. I think everyone should look at their personal finances like a business. That is why I wrote about personal income, blance sheet, and cash flow statements. I made a public template for personal Cash Flow statements on Google Docs that is linked from the cash flow article at Narrow Bridge. Feel free to share.

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