Expert
Guidance:
Creating a personal financial plan
Net worth
Your net worth is a snapshot of where you stand financially at a given time. When you calculate your net worth, by adding up all of your assets and subtracting all of your liabilities, you figure out how much progress you’ve made toward achieving your goals. Calculating your net worth is usually straightforward enough, but it can take a bit of time. You’ll need to gather your financial records — bank statements, credit card bills, and other documents — to create your balance sheet. If a lot of your assets are owned jointly, but you want to figure out your individual net worth, you can divide the value of those assets in half. The same is true of assets you hold in common, such as property you own with siblings. And it’s also important to include your share of the liabilities as well.
Keep it handy
When you’ve finished your calculation, keep your net worth statement on file. This will make it easier to update — something you’ll probably want to do once a year as part of evaluating your progress toward your financial goals.
Calculating net worth
You’ll want to include all of your assets and liabilities when you calculate your net worth. Here’s a checklist:
Personal
property
The total value of your car, boats, fine art, jewelry,
electronics, and antiques. Some assets,
such as antiques, may increase in value — or appreciate
over time. Others, like stereo equipment, usually decrease
in value. You may want to have more valuable assets you
own appraised.
Investments
The current market value of your stocks, bonds, mutual
funds,
and other investments, including those
you hold in retirement plans and annuities.
Real estate The market value of your
home and any other real estate
you may own with other people.
Use the full amount — you’ll
subtract any mortgages due under liabilities.
What you owe
Short-term debts
Your current bills, credit card charges, tuition, insurance costs, personal loans, and real estate taxes. Include the amount you owe on credit cards, even if you always pay the balance in full.
Long-term debts
The balance on any mortgage payments or home equity loans, car loan or lease payments, or any liabilities, such as student loans, that you pay in installments.
Other liabilities
This category may include alimony and child support payments, annual real estate taxes, personal debts, and liens against your property. If your mortgage payments include real estate taxes and homeowner’s insurance, don’t count them again as separate items.
Louise Yamada,
Managing Director,
Louise Yamada Associates
Fair market value
One tip for calculating assets is to use the fair market value,
which is the price a knowledgeable buyer would pay on the open market for something you are willing to sell. Fair market value assumes that neither the buyer nor the seller is under any pressure to buy or sell.
Louise Yamada, 