Do you Own it or do you Owe it?

A personal net worth statement is a snapshot of your financial health each year.  It is an overview of what you own and what you owe.  Begin by listing the current value of everything you own, then subtract the balances of items you owe to come up with your personal net worth.   Your goal is to have a positive net worth and to increase your net worth each year.    

Behind the Scenes:      

Each January, you should create a net worth statement which lists all your accounts and asset values and then subtracts everything you owe to come up with one net worth figure.  Why is this important?  It helps you to see how much you have grown from the previous year and tracks major accomplishments.  It also serves as a barometer to track your financial health and plans for the upcoming year.     

Your goal is to have a positive net worth and to increase your net worth each year  

Create this document in an excel sheet and save it in your 2021 finances file.  You can also print a copy to put behind your financial binder behind tab one for quick reference.   

Look at the example below.  The assets list everything owned and the value if you were to sell it or convert to cash.  If you are married, this is a joint statement include all your assets.  The liabilities look at the total remaining balances (not your monthly payment) of every item you have outstanding.  Use your year-end December financial statements to gather this information.   In the example below, the home is worth (could be sold for) $250,000, and the mortgage balance owed is $185,000. The difference helps your net worth because the home is valued higher than the amount you still owe.

Assets:  Liabilities: 
 (Value/Balance)(Amt Owed)
Home Value $       250,000Mortgage balance $     185,000
Vehicle One $         20,000Vehicle One loan balance $       15,000
Vehicle Two $         10,000Vehicle Two (paid off) $               –  
Checking Account $           2,500Credit card balances $         8,000
Savings Account $         15,000Student Loan 1 $       19,000
401K balance (you) $         40,000Student Loan 2 $         4,500
401K balance (spouse) $         30,000Personal Loan $         2,000
Roth IRA $           6,000
Investments $           1,000
Subtotal Assets $       374,500Subtotal Liabilities $     233,500
Net worth Jan 1 2021 $   141,000
(Assets less liabilities)

Some annual net worth increases may happen because your home value increases or you contribute to your 401K and the stock market had a great year, but it is also affected by choices you make during each year.   Decisions to pay off and keep a vehicle, to pay down debt and a plan to not take on additional borrowing.    Seeing this data in one place, gives you a snapshot of your financial position. It lets you see your big picture status all in one place and it will help you to make better choices and think about where you want to be in the next year.  If you have a negative net worth, what do you need to do to begin to build wealth?  If you have a positive net worth, congratulations and keep it growing this year!

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