Money Management - Head Matters

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11. Net Worth


Do you know what a net worth statement is and how it helps you in planning your financial life? A net worth statement is a picture in time of what a person or family is worth financially—that is, what is the difference in a value between what is owned (assets) and what is owed (liabilities). The balance is the net worth. Some possessions will be listed in both categories. For example, a new car would be listed as an asset; if you borrowed money to buy it, the loan balance would be a liability. A house is an asset while the mortgage is a liability. Ironically, in a given snapshot of your net worth, an asset such as a car that loses value rapidly might be worth less than its liability if your loan payments are not sufficient. A house almost always maintains its value—and usually grows in value as you pay down the mortgage—so the spread between those two figures will usually accelerate your net worth.

This is Henry’s net worth statement today:
 

Accounts Balance
Assets
Bank accounts $1,400
Savings accounts $1,500
House (present value) $0
Cars (present value) $7,500
IRAs (present value) $5,000
Other Investments
Total assets $15,400
 
Liabilities
House mortgage balance $
Car loan (balance) $8,500
Credit card balances $500
Loan balance $2,500
Total Liabilities $11,500
 Overall Total $3,900


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