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04. Discover your net worth?

The start of the year, is always a good time to take an inventory of your current financial position.. This is essential information you’ll need for making any wise financial decisions and for doing your long-range financial planning.

Assessing your financial position (or net worth) begins with listing the kinds of assets (things you own) and liabilities (things you owe) that underlie your numbers and understanding how they affect your overall financial picture.

This process will either reassure you that you’re under financial control and success are within reach, or it may bring to your attention financial problems that addressing. Either way, you’ll know your status and be in position to take control and advance your situation.

INVENTORY YOUR ASSETS

Start by getting a pad of paper or opening a computer spreadsheet. Have a calculator, your things-to-do list (if you’re missing information, note it as a reminder) and your financial organizer (the place you keep your important documents) close at hand.

At the top of the page title it Net Worth Statement, followed by your name and the date, skip a few lines or rows, then label a column Assets. Go down a few lines or rows and list each of your assets under the categories in the box below. Note their current dollar values to the immediate right.

Create a separate page called Additional Net Worth Information. Use it to list any assumptions or document any special circumstances.

When you’re finished inventorying all of your assets, add a line called Total Assets and total your entire asset column. Are you surprised with the number?

LIST YOUR LIABILITIES

Skip a few lines and write Liabilities; follow the same procedure as you did for assets. Add a line called Total Liabilities and total your entire liability column. Are you surprised with this number?

DETERMINE YOUR NET WORTH

Now add a final line called Net Worth. Subtract your Total Liabilities from your Total Assets. The number you are looking at is what you would be worth if you sold everything (before any tax effects).

What do you think of this number? Is there anything you can do to improve it today or in the future? How does it compare with last year’s number?

Net Worth Worksheet

The Board of Governors of the Federal Reserve System conducts the primary research in U.S. household net worth called the Survey of Consumer Finances (SCF), every three years. (See www.federalreserve.gov/newsevents/press/other/20090727a.htm)

TRACK YOUR PROGRESS

It’s useful to update your net worth statement annually and compare it to prior years to give you an overview of your financial progress.

Once you have completed the process, you’ll find that managing your money will be easier. Like straightening your closets or cupboards at home, this takes some effort at the outset, but requires only minimal energy and time if you keep things organized going forward.

As you put the pieces of your financial picture together, you may be surprised by some of the information assembled. Or you may simply have filled in details of what you already knew. In either case, you’re bringing a new level of organization to your financial life.

Just as important, gathering this data will heighten your awareness of your own financial needs, choices and issues. When it comes to managing your money, that awareness is one of the real keys to success.

CHECKLIST FOR TYPES OF ASSETS & LIABILITIES

ASSETS

  • Cash & Cash Equivalents: Accounts with banks, savings and loans, credit unions, stock brokerages, insurance or mutual fund companies that are held outside your retirement plan accounts. These include checking/savings accounts, short-term certificates of deposit, money-market accounts, saving bonds and money market funds, along with U.S. Treasury bills with a maturity date less than one year along with any other cash.
  • Stocks & Stock Mutual Funds: Include those publicly traded on any exchange and outside your retirement accounts. Don’t include stock from a privately held or small business corporation. If you have accounts with brokerage houses or money managers, simply list the firm’s name and the stock totals. Be sure to list cash accounts from these statements under Cash & Cash Equivalents.
  • Bonds & Bond Mutual Funds: Those owned outside your retirement plans. If you have accounts with brokerage houses, list that company’s name and bond totals. Be sure to list cash accounts from these statements under Cash & Cash Equivalents.
  • Stock Options: Company-provided stock options along with options to buy or sell a particular stock. If you have equity in options (market value for the option is greater than what you have to pay for it), list the market value here and set aside what you have to pay for it until later.
  • Retirement Plans: IRAs, Keoghs, pension, profit-sharing, 403 (b), or 401(k) plans that have current value, also company pension plans that have a definable value. If you have a pension plan that will pay a lifetime income, note it on the Additional Information sheet.
  • Notes Receivable: Parties who owe you money. This includes all promises to repay money extended to family and close friends.
  • Real Estate: Home, rental units, vacant land or commercial buildings. Also any fractional shares owned in time-shares or other real estate, unless set up as a partnership. If you’re not sure of the value now, estimate it and note on your things-to-do list to contact a Realtor for an opinion of value.
  • Partnerships: Joint ventures, general partnerships and limited partnerships.
  • Business Interests: Limited Liability Companies, Corporations and Other than partnerships, in which you are actively involved.
  • Annuities: Fixed, variable, accumulated, immediate and private annuities. Do not include tax-sheltered annuities here; list them under Retirement Plans.
  • Life Insurance: List only the cash values (the value you would receive if you ended the policy today), not the death benefits.
  • Personal Property: Furnishings, appliances, jewelry, works of art, sports equipment and other such personal assets. Be careful not to overvalue items such as automobiles, computer equipment, phones and home entertainment items; these may not be worth as much as you think. Estimate price based on a reasonable fair market value. A review of the classified ads will provide a good start for determining the value of personal property.
  • Other Investment Property: Art, collectibles, hard money assets (gold coins and rare stamps), and any other investment property not included in other line items. Investment property is property you intend to sell for a profit.

LIABILITIES

  • Loans: Home mortgage, real estate, home equity line of credit, life insurance cash value loan, 401(k) loan, auto loan, student loan, and any other personal or investment loans except credit cards. Record any outstanding credit card balances below.
  • Credit Cards: List outstanding balances.
  • Other Debts: Stock options purchase values, mortgage payments, property and income taxes, and other unpaid household bills (you may want to list unpaid household bills as a single item).

To do a true net worth statement, you would determine the built-in gains if you were to sell your assets and compute your income tax liability. However, if you are not putting together a statement for an estate or a divorce and these amounts are not material, you may want to skip that calculation.

 This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP®, AEP®.

 

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Last edited Oct 19, 2010


Article Written By: Valentino Sabuco, CFP®, AEP®

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