A Net Worth statement summarises your assets, liabilities, and worth. It almost acts as your financial report card. It summarizes your financial life at a given time or at least one snapshot of it in time.
Net Worth Statement – Meaning
A net worth statement is a report of an individual’s assets and liabilities at the end of a certain date. A Net worth statement is used to determine the individual’s financial health or wealth.
A net worth statement is a unique way of taking stock of your finances instead of just looking at the amount of money in the bank.
How to calculate Net Worth Statement?
Your net worth statement is a measure of how much you own (your assets) minus how much you owe (your liabilities). It is a simple, yet powerful tool that shows your current financial health and is an important aspect in both wealth management and retirement planning.
The simplest way to get your net worth statements is to minus your liabilities from Assets.
There are two steps to calculating your net worth statement :
- List all of your assets (what you own), including:
Cash on hand and in checking accounts, savings accounts, money market accounts, CDs, Retirement funds, such as 401(k)s, IRAs and Keoghs, Stocks, bonds, mutual funds, the cash value of life insurance, and other investments.
Also the market value of the real estate (primary residence, vacation home or rental property) and personal property (automobiles or boats)Other valuables (jewelry or art)
- List all of your liabilities (what you owe), including:
Mortgages and home equity loans
Car loans, student loans, and other outstanding debt, Credit card balances.
When do you need a Net Worth Statement?
Net worth Statement can be useful to decide which of the debts or investments you want to keep, and which ones you should sell or get rid of.
A net worth statement can help you keep track of where you stand financially at any given time by showing you what you own and what you owe. This way, if you think it’s time to make some big changes in your finances, you can use the information on this statement to help make decisions about what to do next.
A net worth statement allows you to measure your progress toward achieving your financial goals. However, too many people only examine their net worth every year at tax time, which is a waste of an opportunity. If you want to get the full value from your net worth statement, then you should use it on a regular basis.
Conclusion
This net worth statement provides a rough guide to help you understand your financial situation in terms of how much you currently own, how much you owe, and what your net worth is. While it is not an official government document and does not have to be audited, it does provide a good overview of your finances regardless of whether you are getting ready to buy a home or embark on another large investment.