What Is A Statement Of Net Worth?
The statement of net worth shows the net value of assets owned by an individual. It can be computed by reducing the liabilities from the assets of the individual.
It basically shows the financial status of the individual.
Why is determining net worth important?
Determining your net worth has the following advantages -
- Your net worth will help you see two important things-
i. Your current financial position; and
ii. What’s stopping you from getting to your ideal financial position? - When you will sit down to calculate your own net worth, you focus will shift from only your assets to your debt and other liabilities as well.
- It will put all the elements of your finances in a new light.
It will help you see what exactly did you do with your finances all this time. - Your net worth also affects your loan applications.
How? Suppose your net worth is negative (your liabilities exceed your assets).
The lender may find it a bad decision to lend to someone who can’t balance their own funds, but this would not be the case if your net worth was positive.
Therefore, it is essential for you to calculate your own net worth and know where you stand, financially.
What’s Included in a Statement of Net Worth
A statement of net worth largely includes the assets and debts of an individual or business. Here are some types of assets and debts that might be included in a net worth statement:
Savings & Checking Accounts
Investments
Life Insurance Policy
Retirement Funds
Personal Property
Real Estate
Credit Card Bills
Mortgage Balance
Unpaid Taxes
Loans
A statement of net worth will include balance sheets, income statements and cash flow statements.
How to calculate your own net worth?
Here is how you can calculate your own net worth -
- Calculate value of cash and liquid assets
- Add the market value of investments.
- Add the value of all tangible property (land, antiques,etc.).
- Add the above amounts to get total assets.
- Deduct all secured and unsecured debt from total assets.
So, with the end of this module we have completed the first step towards financial literacy. But it is a long journey, thus we have created more content on ELM School for all those interested in learning stock market, investing, and personal finance that will help you to achieve financial independence.
