Learn to Prepare a Statement of Personal Financial NetWorth
By Acceler8now.com Investing Education Team September, 2007
"What is it worth?" is a question we often raise about things we want to place a value on. Well, what we are worth, as individuals, is also an important parameter to consider. The requirement to assess a person's worth arises in many life situations. One good case is each time he wants to borrow, say from a financial institution. They request his personal net worth statement as one of the pre-requisties for extending a facility. If you are to provide a guarantee to me in someone's favour over an obligation of, say, N2 million value, I should request to know your net worth. If you do not know your net worth or have not been making effort to grow it, you might be missing the mark in terms of your financial growth. What a person is worth at any given time is refered to as his net worth. Because an individual's worth is a bit more complicated than that of objects - given his multiple possessions that have different values and, important too, his obligations that could be many - we speak of his 'net worth'. Net worth recognises that there are pluses and minuses, assets and liabilities, which must all be put together to determine a person's net position. So, do you know your net worth today? Have you computed your net worth before?
Doing the Computation
The statement of personal net worth lists a person's assets in one section and his liabilities in the other, sums up each section and nets the total of the latter off the former (see a format below). It is prepared as at a specific date, since these values will naturally shift, almost daily. Assets are one's possessions, such as cash balances, bank balances, investments in stocks, bonds and other investment securities, real estate, motor vehicles, jewelry, furnishings, other household equipment, etc. Liabilities, on the other hand, consist of a person's debts and obligations to other parties. It includes outstanding mortagages and consumer facilities, credit card drawings, debts owed a friend or neighbour, unpaid bills and amounts due and any other debts he owes. The net value of the two sides, that is the assets' value minus the liabilities value, is the personal net worth. As is obvious, only personally owned assets can be included. If an asset is jointly owned, only the portion of the value that can be attributed to the person is what to include. A quick way to compute is to use an online calculator. Access this online net worth calculator to cumpute your personal networth right now.
Why You Need to
A statement of net worth is important in preparing a personal financial plan. It helps you define where you are presently, since it gives a snapshot of what you are worth in material terms. It is a good basis for further projections. Part of your planning should be to build projected personal networth statements for future dates where you apply expected rates of growth (positive or negative - you want negative growth for debts, possibly) to individual items to create a picture of what you challenge yourself to become at various future points. This is a powerful basis to monitor and guide you advancement, over time.
The other use for a personal networth statement is when you are required by institutions and other parties to present a net worth statement because of a request you have made. We are however more interested here in the statement you prepare for yourself, as a tool for guiding and propelling your financial progress.
What to Do Now
Financial education is about knowing the things that help others to get the right results: financial growth. Many tools have been developed in financial planning and management that do just that. A networth statement is one and even businesses prepare one from time to time in the form of a balance sheet, a powerful financial management tool. Learn to do so to help yourself shoot forward like a guided missile. One thing you can do right away is to construct you net worth statement as at today. I challenge you too to project one for 5 years from now. Where would you like to be then? What of 10 years' time? Set the tone for your speedy progress by not leaving it to chance. We wish you accelerated growth!
Sample Format
This sample format should help you further in preparing your statement of net worth. Or, use the online calculator.
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