What Is a Net Worth Statement?

Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.

A net worth statement is a visual record of the financial wealth of an individual or a business at a specific point in time. It acts like a financial snapshot that allows you to assess your financial status at any given stage of your financial journey.

Knowing the basics of what a net worth statement means and how it works can help you have a clearer picture of where your finances stand. Also, discover how it can serve as a reference point to help you measure the progress of money goals.

Definition and Example of a Net Worth Statement

A net worth statement is a financial tool that shows the financial health and wealth of a company or individual at any given time. Your personal net worth is determined by calculating what you own (assets) minus what you owe (liabilities). A net worth statement provides a summary of your financial status. It gives you a clearer picture of the dollar value of what you own, which can help you measure your overall financial well-being.

• Alternate name: Balance sheet, financial statement

If you want to prepare a net worth statement, you would need to list the total value of all your assets and subtract the value of your liabilities. For example, if the list of everything you own has a total value of $100,000 and the list of everything you owe has a value of $60,000, your net worth statement would show that you have a current net worth of $40,000.

Note

“Net worth” refers to the total cash you would have remaining after selling everything you own at current market value and paying off all your debts.

How Does a Net Worth Statement Work?

A net worth statement acts as a financial document that helps measure your financial progress. You can use the statement to help you assess your current finances, track your net worth, and set long- or short-term financial goals. A net worth statement allows you to take an inventory of your assets versus your debts.

When it comes to making important financial decisions, a net worth statement can be essential. For instance, suppose you are overloaded with debt. Completing a net worth statement can highlight the crucial areas you need to attack in your debt-reduction plan to improve your financial status. Also, when applying for a mortgage, most loan applications require the same financial data you’d see in a net worth statement. So having the information can speed up the application process.

Creating a Net Worth Statement

Putting together a net worth statement is not a difficult task. All it requires is a simple checklist and some basic math.

1. List all your assets (anything of value you own) on a net worth worksheet or piece of paper. Estimate the current dollar value of each item—meaning what the item would sell for today, not the amount you paid. Calculate the total. Assets should include items such as:
   • Money in any bank accounts
   • Balance in investment accounts (stocks, bonds, retirement accounts, etc.)
   • The market value of your home and cars, if applicable
   • Your business interest or ownership
   • Personal property such as household furnishing, jewelry, art, collectibles, and appliances
   • Cash value of any insurance policies

• Principal balance owed on a mortgage or real estate loan
• Balance on car loans
• Credit card balance
• Balance on student loans
• Any medical or tax debt

Note

To monitor your financial progress, try doing a net worth statement every year.

Once you list the details of your debts and your assets, your net worth statement will reveal whether you have a negative or positive net worth. For example, if the value of all your assets totals $150,000 and all of your debts total $75,000, your net worth statement will show a positive net worth of $75,000. On the other hand, if your assets total $150,000 and your debts total $200,000, your net worth statement will reveal that you are $50,000 in the negative.

While a negative net worth statement is not ideal, it’s not a lost cause, either. It simply means that if you’re able, you need to take prompt corrective actions to improve your financial status. Here are a few strategies to use to push your net worth statement into the positive:

• Create a budget
• Pay down debts
• Save more
• Increase your retirement contributions
• Avoid taking on new debts

These strategies can help you improve your net worth statement and strengthen your financial health. Regardless of whether your net worth statement is positive or negative, it’s crucial to have a starting point and know where your financial situation stands.

Key Takeaways

• A net worth statement is a financial tool that assesses the financial well-being of a business or individual at any time.
• A net worth statement takes an inventory of your assets versus your liabilities to determine the approximate value of your current net worth.
• A net worth statement can reflect either a positive or a negative net worth balance.
• Using a net worth statement can help track your net worth and measure the progress of your money goals.

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