What is a Net Worth Statement and Why Have One?

Your Net Worth Statement is basically an accounting of all your assets (your gross value), minus all of your liabilities (your net value). That is, it is a tool that helps you determine your current financial position by subtracting everything that you owe from everything that you have. This tool tells you where you are at presently and if done regularly can help you track what direction you are moving in.

Net Worth Formula - What is Net Worth Formula? , Examples

Most advisors that recommend Net Worth Statements as a tool suggest that you should calculate your net worth once a year and compare it against the previous years Wiki . Just to help you remember, it is frequently suggested that you do this at the same time that you file your annual tax return. However, active investors and traders – people that have frequent changes to their net worth – often calculate their net worth every quarter or even every month. This is probably overkill for most people, but you may want to do an additional calculation when deciding whether or not to make a major financial decision, such as buying a house or vacation property.

Generally speaking, when totaling up all of your assets, you should confine yourself to items that have a value of $500 or more, except cash and liquid assets. This is simply because trying to appraise the value of all your worldly possessions, especially items that are not likely to have an actual resale value, can lead to a serious over estimation of your net worth. Yes, you may have spent $500 on model ships, but do you realistically believe you could sell the models for $500? Probably not, and therefore they should not be counted among your personal assets.

Similarly, it is important to list the actual resale value of items that have one. Vehicles, for example, typically have a “Blue Book Value”, but this also has to be compared against your local market as well. This is especially true in the current period of financial turmoil, where values have a tendency to change dramatically. For your vehicle, it might be better to visit a used car lot or check the classifieds in your local paper to see what other people are selling comparable vehicles for. It may be wonderful to have a care with a “Blue Book Value” of $12,000, but if the same vehicles are selling for $6,000, this is the real value of the vehicle.

The use of Net Worth Statements for personal finance has become very popular because it really is an excellent way to see how you are doing financially. Learning how to create a Net Worth Statement, and doing it correctly, is easy and some people even consider it fun. This can be especially true if you are currently paying off debt as you can literally “see” how this is improving your net worth. Learning how to compile and use this tool is well worth the effort, especially if you are unsure about how your overall financial health measures up.

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