Your Personal Net Worth Statement

Building a personal net worth statement is fundamentally important – regardless of if you’re a high swinging investor or a passive-fund-kinda-guy. It’s easy for us to look at our bank statements every month, agree that they look right, and then move on. Investments take time – and the only way to truly track your investments is to closely monitor them over a long period of time. Corporations are constantly assessing and reassessing their balance sheets (assets and liabilities) as part of their overall long term strategies. Individuals should treat their own homes and wallets as mini corporations, with just as much rigor and analysis.

You should be using Excel to create your net worth statement for ease of calculations and ratio analysis. Feel free to email me and I’ll send you a template. What we’re going to do next is list out all our money, and then all our things that are worth money, and then all our loans.

1. Start with a section called Liquid Assets or Short-Term Assets. Under here – start a subgroup called Cash Accounts or something similar. List out all your cash bank accounts - checking, savings, emergency fund. Remember to include your spouse’s accounts - generally you want to calculate your family’s net worth.
2. Next, also under Liquid Assets, you’ll want a subgroup called Possessions or something similar. Here, you’ll want to list out what you own. A word of caution – don’t waste the time trying to inventory your entire house – its not the focal point of your net worth statement. What possessions do you own, other than vehicles and homes, that carry value? In my statement – I have only two lines here – Jewelry and Furniture. The latter is really negotiable. But my wife’s jewelry collection does indeed carry value. And its important to count this as part of your own worth. Forget about clothes and toys and books – when it comes down to selling them they carry very little value. Enter the total value as of TODAY – not the purchase price. Basically – if you had to sell everything you had in a jam – how much could you get for it?
3.  And now you’ll want to itemize your liquid investments. This means investments that you can sell right away. Not everyone creates an investments section on their net worth statement. Seeing as how I and my readers probably do so or at least plan to do so, this section carries the added benefit of being able to track investment portfolio performance. Itemize each single investment of yours – HPQ Stock value, TRAMX Fund value, etc. Enter the value as of today.
4. You’re now complete with your Liquid Assets section. So start a header called Illiquid or Hard Assets. Again - I separate this based on hard assets and illiquid investments. Hard assets refer to your vehicles, homes, and boats, and don’t forget to include all the hotels you own and the private island by Mauritius. (Disclosure: I’m lying). And your illiquid investments are basically your 401k and IRA accounts, or anything tied up for a long time.
5. Now you’re ready to total them all up. Get creative – what do you really want to know about your assets? I added five new lines here:

   TOTAL LIQUID ASSETS

   TOTAL ILLIQUID ASSETS

   TOTAL ASSETS ex home

   TOTAL ASSETS

   Total Investments

   The first line tells me what I’ll have if I need to liquidate in a hurry. The second tells me how smart my investments are. You don’t need to use my template – but definitely try and add value the best way you can.

6. Now you can create your LIABILITIES section. I won’t expound as much as I did in the Assets, but list out your Short Term Liabilities, which essentially are all your credit cards (hopefully few), followed by your Long Term Liabilities (home, car, and student loans).
7. Your total net worth equals your total assets minus total liabilities.

There’s no point to working at all if you can’t increase your net worth. We work too hard and spend too much time if all we’re going to do is somehow magically spend it. For every dollar that you earn and can avoid spending, it should contribute to growing your net worth. Perhaps in a high interest account, or perhaps in a winning investment. I urge everyone to have a personal net worth statement – without having one mapped out on a quarterly or monthly basis – money seems to just slip through our fingers.

Want to get started? Email naveedsmind for a template!