financial planning reports

Financial Planning Statement of Net Worth

The second useful financial planning report is the Statement of Net Worth (the first being the Statement of Cash Flows).

This financial planning statement is used to determine the financial health of a individual or family by calculating total financial assets and liabilities. The information obtained from these two financial planning reports allows us to track the accumulation and distribution of assets and debt over time and adjust our plan in order to meet our goals and objectives. Your net worth is a good barometer of your entire financial situation.

Statement of Net Worth (Balance Sheet)

The Statement of Net Worth measures our assets relative to our liabilities. Net worth is calculated by taking the value of all of our assets and subtracting our debts, loans, etc. This shows the value of our assets we would have left after we pay all of our debts.

In the best case scenario, we would have more assets than liabilities, thus our net worth would be positive. A negative net worth signals that we have more debt than assets. This is to be expected when a family is young, however moving towards retirement we should focus on having a less debt than assets.

Organizing Net Worth Data

To start calculating your net worth, you will need to determine the fair market value (FMV) of all of your assets and liabilities. You will be able to find this information from your tax records, bank statements, brokerage accounts, etc. Once you have all of the following data, add to gather all of your assets and liabilities separately.

  • Cash and Equivalents
  • Certificate of Deposits
  • Treasury Bills
  • Insurance Cash Value
  • Stocks
  • Bonds
  • Mutual Funds
  • 401k and IRAs
  • Pensions
  • Business Equity
  • Real Estate
  • Vehicles
  • Current Bills
  • Credit Cards
  • Installment Loans
  • Mortgage
  • Life Insurance Loans
  • Car Notes
  • Qualified Plan Loans
  • Margin Loans
  • Personal Lines of Credit

Net Worth Planning and Analysis

At this point you should have totaled all of your assets and liabilities. Once that is complete, simply subtract your liabilities from your assets. What’s left is your net worth (negative or positive).

In order to improve your net worth you will need to ensure that your annual cash inflows exceed your outflows. This can be accomplished by sticking to your budget and making an effort to systematically save money. Another way to improve your net worth is to avoid unnecessary debt such as credit cards and unneeded vehicles. As mentioned earlier, the older you get (paying off mortgage, student loans, etc.) the faster your net worth should improve.

By creating a Statement of Net Worth and Cash Flows you will be able to have a good sense of your financial situation. Once you have implemented your financial plan you should recalculate these two statements on an annual basis. This will allow you to measure your progress and help determine areas where you need a little more attention.