Net Worth Statement – Part II

Yesterday, I began a new series called “Financial Planning Basics” and started with a post about the net worth statement. Today, I’ll take the net worth statement a little further and show some various transactions and their effect on the net worth statement. While studying these examples, keep in mind the net worth equation:

Assets = Liabilities + Net Worth

Example One

Withdraw $5,000 from your savings account to pay for a vacation:

Assets = Liabilities + Net Worth
-$5,000 = No Change + -$5,000

Example Two

Withdraw $5,000 from savings and charge $2,000 to your credit card to pay for a new dining room suite:

To reflect the withdrawal from savings and the additional liability on your credit card:

-$5,000 = +$2,000 + No Change

To reflect the addition of the dining room suite to asset-side of the equation:

+$7,000 = No Change + No Change

Those are a couple of examples to illustrate the accounting involved with net worth statements. With my next post, we’ll dive a little deeper into net worth statements.

5 thoughts on “Net Worth Statement – Part II”

  1. I based my equation on the way it looks on a balance sheet with assets listed on the left and liabilities and net worth on the right.

  2. In Example Two you don’t say what happens to the withdrawal from savings. If it’s being spent on the vacation as it was from Example One then there is a change in Net Worth.

  3. What is a net worth? I depends on whether it’s a basketball net, a volley ball net, a fishing net or what you net after deducting all expenses from your source of income. All joking aside, I follow a very simple concept to increase my net worth: spend less than you make and set aside some for emergency and some for retirement. This has served me well throughout my life.

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