Corporations know it as a Financial Balance Sheet. This would be your own Personal Balance Sheet. Basically it provides you with an overview of your total worth on paper.
To get to your own Net Worth you just need a piece of paper and a pencil. If you want to get really fancy, you can use an Excel spreadsheet on your computer. Create two (2) columns: one labeled Assets and one labeled Liabilities. Under each column you will list out the name of each asset and liability along with the dollar amount.
For the assets column list out all of your assets that you own. This is anything that has any monetary worth. The total worth of your house would be included on this side. That is, if you were to sell that house today, how much money would you expect to sell it for. If it would sell for $300,000 then you would put the following under your assets column:
Other items that might get included under assets would be cash in the bank, cash on hand, investments, IRA’s, 401k’s, Certificate of Deposits, Money Market accounts, Treasury Bonds, stocks, value of cars, jewelry, special collections (like coins, stamps, artwork). Basically anything that you own and may be worth money goes on the Assets side of the worksheet.
Liabilities are just the opposite of assets. It is every item that you don’t own outright. It is anything that you owe money on. It is your debts. Like the Assets side of the worksheet you want to list out every one of your liabilities. Don’t worry about monthly payments or interest rates for this worksheet. Just put down the total cost it would take to pay off that liability and get out of debt.
For example, on that $300,000 house asset example above, let’s say you owe $200,000 still on a mortgage. So it would take $200,000 in cash to pay it off. Then in your liabilities column you would write:
Other items to include in your liabilities column are: credit cards, school loans, mortgages, car loans, home equities, lines of credit, any furniture or electronics you still owe money on, and money borrowed from friends and family.
Total It Up
1) Finally you want to calculate your Net Worth. To do so add up all of the dollar amounts in your Assets column to get a grand total of everything you own.
2) Next add up all the dollar amounts in your Liabilities column to get a grand total of everything you owe.
3) Finally Subtract your grand total amounts. So subtract your Liabilities from your Assets.
Net Worth = Assets – Liabilities
This number, your Net Worth, is the dollar amount you are worth, on paper. We say on paper, because unless you sold off all of your assets, you wouldn’t truly know exactly what you would get for them. So it is an estimate. But it should be a very close to accurate estimate. Hopefully your number is greater than 0, which mean you actually have some wealth or net wealth. If it is zero, then you are breaking even. If it is a negative number, then that is the worse case scenario, where you have no wealth. Or negative net worth. What you owe is more than what you own.
You can use this worksheet to track your progress as you erase debt. Go through this exercise every year to recalculate your net worth. It should always be increasing if things are going well. And if you are erasing debt, then you should see a positive jump in your net worth every year. It becomes a tool to track your progress. And it is a good gauge of how financially healthy you are.
So get going, create your Net Worth Worksheet, erase debt, track your progress, and build wealth.