 |
|
Your Net Worth
Your net worth statement is a snapshot of where you stand financially at
a given point in time.
|
|
| |
 Cash reserve assets are cash, or the equivalent
of cash, that you can use on short notice to cover an emergency or make
an investment. They include the money in your checking, savings, and money
market accounts, CDs, Treasury bills, and the cash
value of your life insurance
policy. It's a good idea to have a cash reserve of three to six months.
Investment assets, including stocks, bonds,
and mutual funds, are designed to produce income and growth. Retirement
plans and variable annuities are considered long-term investments.
Personal assets are your possessions. Some - like antiques, stamp collections, and art - may appreciate, or increase in value, making them investments as well. Others - like cars, boats, and electronic equipment - depreciate, or decrease in value over time.
Real estate is a special asset because you can use it yourself, rent it, or perhaps
sell it for a profit.
|
| Assets |
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Assets |
|
$462,000
|
|
|
|
|
|
|
|
THE STARTING POINTAs part of deciding how to pursue your financial
goals, you should take a look at where you stand right now. You do that
by adding your assets - such as cash, investments, and pension plans
- in one column and your liabilities - or debts - in the
other. Then subtract your liabilities from your assets to find your net
worth.
Net worth doesn't measure cash flow, but there's a clear relationship between how you spend your money and what your financial picture looks like. If your assets outweigh your liabilities, you have a positive net worth. If your liabilities are larger, you have a negative net worth. Most experts would say your first goal should be getting into the black.
Knowing how your assets are divided is especially helpful
for financial planning. For example, if you have more money in cash than
invested in stocks, bonds, mutual funds, and annuities, you may want to diversify your
holdings to increase the potential for long-term growth and income. And
if you have nothing set aside for retirement, you may want to find a way
to start.
|
| |
 |
| |
 Short-term debts are your current bills: credit card
charges, installment and personal loans, income and real estate taxes,
and insurance premiums. You generally include your credit card balances,
even if you regularly pay your entire bill each month.
 Long-term debts are mortgages and other loans that you repay in
installments over several years.
OTHER PERSPECTIVESWhen potential lenders assess your loan or credit
card application - basically a net worth statement - to decide
whether you qualify to borrow, they look at what you already owe. But
they may also calculate what you might owe if you charged as much as you
could on all your credit cards and drew on all your authorized lines of
credit.
Lenders also look at your net worth statement for
cash reserves and investment accounts. Having investments means that you have
resources to tap into in an emergency, including assets that could be sold
to pay your debts.
|
| Liabilities |
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
0
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
0
|
| Total Liabilities
|
|
$206,500
|
| |
|
|
| |
|
USING NET WORTH STATEMENTS
Figuring your net worth is not only a critical first
step in financial planning. It will also come in handy in many financial
situations. For example:
-
Mortgage lenders require a statement of your assets and liabilities as part of your application
-
College financial aid is based on your net worth,
so you'll have to report your assets and liabilities when your children
apply for aid
-
Loan and
line-of-credit applications usually require net worth statements
-
Certain high-risk investments may require that
you have a minimum net worth - say $1 million or more - and
require a net worth statement as evidence
|
|
© 2006 by Lightbulb Press, Inc.
All Rights Reserved.
|
| |
|
|
|
|
| |
| |
