Net Worth Statement – Part IV

December 5, 2005

My last post in this series finished up the assets side of the net worth statement. Now it is time to look at liabilities.

A liability is something you owe, either now or later. A liability takes away from your net worth.

Liabilities are usually classified as either short-term or long-term. Examples of short-term liabilities are:

  • Credit card debt
  • Utilities
  • and any other debt that must be paid off in less than a year

Long-term debt is debt that is usually paid off in more than a year. These include items such as:

  • Auto loans
  • Student loans
  • Home mortgage
  • and any other large purchase

For the most part, the less debt you have, the better. However, there are times when debt is necessary. I don’t know a whole lot of people who can pay cash for a home!

Next time I’ll put this all together in a model net worth statement so that you can see how it all works together. Until next time, feel free to familiarize yourself with the other related posts:

One response to Net Worth Statement – Part IV

  1. Would one define insurance deductables as a long term (yet to occur) liability?
    …wanting the “networth” to be as meaningful as possible, I’ve defined such things as auto,medical&home insurance deductables in addition to normal every day expenses.
    Reasons being: accident occurs, until the deductable is paid, the insurance won’t kick in. …follow my logic, if it’s slightly off topic, forgive me; but I think you understand my question and intent.