What’s your net worth and why does it matter?

Net worth is a term you hear in the news when they discuss wealthy people but, news flash, everyone has a net worth and it is important to know yours. A simple way to find your net worth is to create a personal financial statement (PFS). A PFS is a picture of your financial health that assists you in keeping track of your assets and liabilities. Why is this helpful? The PFS can help you create informed financial decisions that work with your budget to help you achieve your financial goals – such as retirement, overall debt reduction, or saving towards something special. (Don’t have a budget? Learn to make one here)

To create a personal financial statement, you first need to understand a few banking terms.
   Assets – Items you own that are valuable. Examples may include your house, car, and investments.
   Liabilities – The amount you owe to another person or business. Examples may include your credit card, mortgage, or loan debt.

You can create your personal financial statement in 3 easy steps. (click here for a sample worksheet)
   Step 1) List all your assets and their value. Then total the values.
   Step 2) List all your liabilities and their value. Then total the values.
   Step 3) Take and subtract your liabilities from your assets. (Total assets – total liabilities = net worth.)

What does my net worth number mean? 
   A positive net worth means the value of your liabilities is covered by your assets.
   A zero net worth means that your liabilities equal your assets.
   A negative net worth means that your liabilities are not covered by your assets.

Now that you know your net worth, what do you do with it?
Use your net worth to guide your budget decisions. Review your personal financial statement and identify areas you would like to focus on improving. For example, perhaps you would like to decrease your liabilities to increase your net worth.  So, you decide to make a financial goal to pay down your credit card balance. Once you’ve set the goal you can look at your monthly budget to see how you could adjust your expenses to pay more on your credit card balance. How will you know if your net worth is improving? Quarterly revisit your Personal Financial Statement to see how your number has changed.

Creating your personal financial statement is an important step in taking control of your finances on your journey to financial independence.

Check out more articles for your financial health here: View our blog

How to make a budget

What you need to know before you buy a home

FDIC's How Money Smart Are You? - Calculate My Net Worth     

Back