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Net Worth Statement – Part V

By JLP | December 12, 2005

As promised, here is an example of a net worth statement. I modeled this after one that I found in an out-of-print book called The Fast Forward MBA in Financial Planning by Ed McCarthy.


ASSETS

Financial Assets

Cash

200

Checking

3,000

Money Market Accounts

7,000

Savings

6,000

CDs

6,000

Payments Receivable

10,000

Total Financial Assets

$32,200

Personal Assets

Clothing

5,000

Furnishings

15,000

Autos

30,000

Home

200,000

Other

1,100

Total Personal Assets

$251,100

Investments

Stocks

25,000

Bonds

0

Mutual Funds

35,000

Retirement Plans

250,000

Life Insurance Cash Values

0

Business Interests

25,000

Real Estate

0

Total Investments

$335,000

TOTAL ASSETS

$618,300

LIABILITIES

Short-Term

Utilities

500

Credit Cards

3,000

Other

1,500

Total Short-Term Liabilities

$5,000

Long-Term

Auto Loans

15,000

Student Loans

30,000

Mortgage

175,000

Other

0

Total Long-Term Liabilities

$220,000

TOTAL LIABILITIES

$225,000

NET WORTH*

$393,300


*($618,300 – $225,000 = $393,300)
As you can see, it is a pretty straight-forward exercise. Notice that this couple’s net worth is a positive $393,300. Had their liabilities been greater than their total assets of $618,300, they would have had a negative net worth.

Tomorrow’s post will be about the cash flow statement. YIPPY!

Topics: Basics, Financial Planning, Net Worth Statement | 5 Comments »


5 Responses to “Net Worth Statement – Part V”

  1. Gary Anderson Says:
    January 28th, 2006 at 11:19 am

    Hi JLP, I believe this is helpful. But my MBA son is confident that there is a housing bubble in the most popular cities and their surrounding sphere’s of influence. So the 200k figure under “home” may or may not be accurate. If the house value falls to 150,000 dollars, the person is in a hole for 25,000 and is “upside down”. Gary

  2. Chris Says:
    October 6th, 2006 at 8:42 am

    The definition of “assets” seems to change, depending upon the person/situation.
    I personally view my house as an asset, but I get a better judge of my “real” net worth, if I don’t count the house and associated mortgage in the net worth statement.
    Why do I call it my “real” net worth? Simply because I need a place to live. True it doesn’t have to be in our $325k (assessed) house, which has a $222k mortgage for the next 13.5 years.
    In the truest sense of the word “asset”, I believe that it would mean anything that is bringing money back, which would include only investments/savings. Not a car, etc. (but then again, I don’t own a Lamborghini either).

  3. Will Says:
    October 27th, 2006 at 10:24 pm

    I’m 34 & I don’t have an MBA. But following both Gary and Chris’ response; I ponder upon the following:
    A house (you live in): is some ways both an asset and a liability (aside from the mortgage) in that it incurs bills.
    Though not all houses are equal. Some in good neighborhoods rise in value fast, others just incur expenses faster. (Bigger house, more expenses. …keeping up with the Joneses)
    You almost have to judge houses itself as to how much continued expenses will it incur vs. it’s rising value.
    …hence I’ve seen some writers view real estate assets different from your home. Respective views:

    “Bottom-line: how much this asset is generating $ how fast?/Will it always stay in the green?”

    vs:

    “Nice neighborhood, it suits my budget, good future, it fits my life!”

    —————
    Backing up to a higher elevation perspective; here’s another interesting summary report courtesy of the USGov. I wish there was a more up to date one. …but regardless, it’s fascinating how the writers seemed to have gathered some interesting info as to how much of the networth is really generating income. (Perhaps I’m reading into this a bit more then I should)
    Ref: http://www.census.gov/prod/2003pubs/p70-88.pdf
    On a personal level of being an investor: I think the thought of having the house(I live in) be too much of my overall asset can be much like putting too much of my eggs in one basket. A little diversification in other non-retirement income producing assets in diverse investment vehicles helps spread the risk.

    thoughts?

  4. Alan Williams Says:
    June 29th, 2007 at 11:40 am

    I find the discussion regarding the inclusion/exclusion of the personal residence and associated mortgage in a person’s net worth statement interesting. While I can see some of the points regarding the fluctuating value of real estate, the fact that a home is a necessity, and the additional costs associated with owning a home as valid, overall it seems that the home and associated mortgage should be included in the calculation of net worth.

    First, the value of the home and mortgage are very important in tracking where you stand over time. For instance, assuming you update your net worth statement annually, the equity in your home should increase over time. If not, this could be an important signal of future problems in your overall financial situation.

    Second, while your residence may not bring in money currently, it can be a very important part of future retirement funding. For example, a large house purchased many years ago that has little or no remaining debt can be sold and replaced with a smaller home in a lower cost area during retirement. The excess equity can then be used as a source of additional investment that will boost the amount of cash available in retirement.

    Third, the complete financial snapshot (i.e. net worth statement) would be incomplete if the value of the home and associated debt were ignored. For instance, the mortgage is included in the calculation of your credit score. The mortgage is also an important part of the cash flow statement. Therefore, if the debt is playing an important role in your overall financial situation, the value of the house should also be included in order to paint the most accurate picture possible.

  5. Al Says:
    August 5th, 2007 at 10:19 am

    As to what should be counted in net worth, it’s generally conceded that home equity is still included. But–largely because of the issues raised above–the industry has invented a new calculus known as “HNWI,” or “High Net Worth Individual,” which excludes the home. To qualify as a HNWI, you need at least a million in investable assets outside the home. If you’re “just” a millionaire including home equity, they call you “mass affluent,” or “emerging affluent,” or “sub-HNWI.” Such are the wages of inflation. Millionaires just ain’t what they used to be.

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