Calculating Your Financial Worth

Often your financial worth is asked for by a financial institution in the form of a personal financial statement. Your Net Worth is the total value of your assets minus the value of your what you owe.

Your assets generally include bank accounts, investments, property and cash. Be sure not to neglect the key components of your assets:

Cash includes funds in your checking account, savings, money market accounts, CDs, Treasury Bills and cash values in your life insurance policies.

Investments include stocks, bonds, mutual funds, retirement plans, IRAs, annuities, employee stock options and loans to individuals or businesses.

Personal Property includes collectibles such as art, stamps, antiques, and coins. These items may appreciate in value over time. This category would also include other holdings such as cars, electronics and furnishings. These items may decrease in value over time. Real Estate would include any homes, vacation homes, rental properties and land.

Your liabilities commonly include debts you owe on loans, outstanding credit card balances, mortgages, leases, alimony and child support. Be sure to account for all the money you owe others both short term and long term. Short term liabilities are credit card balances, monthly bills, taxes, insurance and installment loans owed within the next year. Long term liabilities would include loans you may repay over many years such as mortgages, student loans, contracts for deed or other long term obligations.

When establishing a financial plan for you or your family a first step is usually to take a look at a personal financial balance sheet or your net worth. You will quickly get a picture of what you have,your debts and what the net balance is of each.

Analyzing the components of your assets and liabilities and making projections of their individual values into the future can be helpful in forecasting your financial future and your retirement needs.

Accurately calulating your net worth every six months will give you a track record of how your wealth is growing or declining as time goes on.

Your Net Worth will generally be expected by entities such as financial institutions when qualifying for a home equity line of credit or mortgage. Universities and colleges may require a financial statement if applying for financial aid. Investment Institutions may require a financial statement when investing in high risk instruments. Sellers may require a financial statement when purchasing a business or other asset with seller financing, and finally clubs and partnerships may demand a financial statement where financial obligations are involved.