Financial Focus: Do You Know How Much You Are Worth?

IMG_9175Financial Focus: Do you know how much you are worth?

How To Create a Personal Balance Sheet

Do you know what your net worth is? How about your worth when you are dead? Do you know how much you are worth, NOW, when you’re alive?

Knowing your personal worth should be the first step of financial planning where you assess where you are today. In other words, you can not get to the futuristic finish line unless you know you have the tires to make it.

So, you have a goal.

Let’s take a look at Mr. Jones, one of my new clients who wants to purchase a home in the next 5 years. He has some money, but of course, he would like to put together a savings and investment strategy to attempt to achieve that goal. Calculating your personal net worth is the best way to know exactly what your starting point is in any financial plan you develop.

A balance sheet calculates your net worth by comparing your financial assets (what you own) with your financial liabilities (what you owe). The difference between the two is your personal net worth. Don’t be discouraged if your net worth is negative—keep in mind that this should be an accurate depiction of your financial situation. Setting goals is much easier once you know what your current net worth is.

So let’s get started!

I asked Mr. Jones to put together all of the information that he has available, such as his latest bank statements and the principal balance of any loans he might have. Once you have all of that information available, start developing your balance sheet by listing all of your assets (financial and tangible assets) with their values.

  • Cash: in the bank, money market accounts, or CDs.
  • All investments: mutual funds, college savings accounts, individual securities.
  • Home value: the resale value of your home.
  • Automobile value: the resale value of your car.
  • Personal Property Value: resale value of jewelry, household items, etc.
  • Other assets

The sum of all of those values is the total value of your assets. Your goal should be to continually increase your assets.

Next, you can look at your liabilities, which should be everything you owe.

Here are some common liability categories:

  • Remaining mortgage balance
  • Car loans
  • Student loans
  • Any other personal loans
  • Credit card balances

The sum of all of the money you owe is your liabilities. As you start to pay down your debt, your total liabilities will decrease. The difference between your assets and your liabilities is your net worth.

You can start to increase your net worth by decreasing your liabilities, increasing your assets, or by doing both!

Make sure you continuously update your balance sheet (at least twice per year) to ensure that you are meeting all of your financial needs—before you start on creating your goals.

In the case of Mr. Jones, he now realizes that he must first achieve “positive health” NOW, before planning for the future.

How about you?

Anthony Rivieccio is the founder & the CEO of The Financial Advisors Group, celebrating their 18th year as a fee only financial planning firm specializing in solving one’s financial problems. Anthony, a recognized financial expert since 1986, has been featured by many national and local media including: Klipingers Personal Finance, The New York Post, News12 The Bronx, Bloomberg News Radio, Bronxnet Channel 67 TV, The Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Bronx News and The Bronx Chronicle.

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