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Your net worth statement is a snapshot of where you stand
financially at a given point in time.
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 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.
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Assets
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Total Assets
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$462,000
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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.
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 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.
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Liabilities
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0
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0
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Total Liabilities
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$206,500
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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
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