Knowing Your Net Worth Equals Good Money ManagementManaging money is not easy. It requires a tough and disciplined mindset. It requires that you pay attention to detail. If you get into a habit of managing the nickels and dimes the dollars will take care of themselves. You should document each and every financial transaction and apply established accounting principles to those transactions in order to track your financial situation. Take control of spending. Know your cash flow and use a balance sheet (net worth statement) to track your financial progress. Net worth is a measure of your financial position at a particular time. It is calculated by subtracting the sum of your assets (what you own) from the sum of your liabilities (what you owe). The difference between the two is your financial net worth. Your statement should be divided into two parts: assets and liabilities. Here's a net worth form that will add and subtract your assets and liabilities for you. Liabilities On the other hand, you may already have obtained appraisals of valuable property for insurance purposes. Since a statement of net worth should be up-to-date and accurate, use only recent appraisals and current investment values. In the case of jointly held assets or joint liabilities (co-signed loan contracts or mortgage agreements, for example), include only your share in your valuation. Attach a complete list of such jointly held assets or joint liabilities to your statement. You will need this information when you calculate the value of your estate for estate planning purposes. Assets A Typical List of Assets Home (current market value) Other real estate (current market value) Home Furnishings (current value, not replacement cost) Personal Property: Automobile, Jewelry, Furs, Art, Antiques, Boat, Snowmobile, Airplane, Other (specify) Cash: Checking accounts, Savings accounts Money owed (identify borrower and due date) Investments: Term deposits, Guaranteed investment certificates, Savings bonds, Other bonds, Registered retirement savings plans, Other pension plans (cash value), Life insurance (cash value), Stocks, Other (specify) Business assets Other assets (specify)* * Include your share of jointly held assets and prepare a separate list Liabilities Indicate the outstanding amounts for the following liabilities that apply to you, then add the amounts to determine your total liabilities. A Typical List of Liabilities Mortgage Loan Other loans: Automobile, Education, Other Outstanding bills: Insurance premiums, Income taxes, Property taxes, Credit cards, Other (excluding regular monthly household bills) Liens against property Other liabilities (specify)* *Include your share of joint liabilities and prepare a separate list After you have completed your lists, subtract your total liabilities from your total assets. This figure is your net worth. You should review regularly to make the necessary adjustments to both parts of the form. Keep a copy of your most recent statement of net worth in your safety deposit box, or wherever the original of your will is kept, and also keep a copy at home for ready reference. Good money management requires you to be able to give an account of your financial activities. A balance sheet (net worth statement) is a tool to allow you to make better use of your income and maintain better control of your expenditures. You must have a clear idea of what you own and what you owe. A balance sheet is an essential component of all financial planning. Consider it a financial roadmap to where you want to go. Mvelopes Personal is an online budgeting system that makes it easy to create an effective personal budget and track every aspect of your spending as it happens. It will help you always know exactly how much you have left to spend, instantly know the impact of every spending decision, effectively manage credit card spending, and quickly create an easy to use household budgeting plan. Click here to learn more |