According to a February 2022 McKinsey report, “$30 trillion in investable assets will be possessed by baby boomers by 2030, much of it controlled by women. Today, women control a third of total US household investable assets—approximately $12 trillion. Over the next decade, this share will grow. The biggest cause of this shift will be demographics: as baby boomer men die, many will pass assets to their female spouses, who tend to be both younger and longer lived.”[i]
Are you prepared for this transfer? How do you assess your financial wellbeing? There are key financial reports that help with this analysis. This blog will focus on one called a Net Worth Statement.
Net Worth Statement
A net worth statement is a selfie, a financial photo. It is specific to the day you compile the numbers. If you compute a net worth statement today, tomorrow, and the next day, each will be different. A net worth statement lists your assets—property that you own—along with their respective market value; and your liabilities—what you owe—along with the amount that you still need to repay. When you subtract the value of your liabilities from the value of your assets, the result is your personal net worth.
ASSETS – LIABILITIES = NET WORTH
Hopefully, the result will be positive. However, negative net worth is not uncommon early in your career when your focus is on covering living expenses, paying down student loans, along with creating an emergency fund. (See my blog, Your First Financial Step.) If your net worth is still negative after you have your career in gear, you may need the help of a debt or credit counselor to get on track. There is no shame in that and there are good resources available. Before you commit, it is a good idea to check the background and get references for a counselor and check the Better Business Bureau rating of any agency. A thorough check is important because, unfortunately, there are also scammers in this arena.
Changes in Your Net Worth
Early in your career your net worth may be disappointing but as you save and invest and reduce your debt, it should increase. That is the trend that you want to see. How frequently should you take a selfie—compute your personal net worth? That is your decision but starting at least annually makes sense. As you start earning and spending, there is likely to be a meaningful change in your net worth over the course of a year. You can then assess any trends and make plans to offset any changes headed in the wrong direction. As you approach retirement, your net worth may stabilize but there are outside forces that can affect your net worth, too.
For example, changes in the market value of your assets will change your net worth. If I compared my net worth on December 31, 2023 to December 31, 2024, what do you think I would see? I am retired and regularly withdraw from my investments. Has the increase in market value kept up with my distributions? The value of my home has decreased slightly. Since I am paying down my mortgage, my liabilities have also decreased. Without computing the actual numbers, however, I do not know if my net worth has declined, stayed stable, or increased.
Sample Net Worth Template
Here is an example of a net worth template:
| NET WORTH STATEMENT | |
|---|---|
| PERSONAL STATEMENT FOR: (NAME OR NAMES) | |
| AS OF: (DATE) | |
| AMOUNT | |
| ASSETS | |
| Liquid Assets | |
| Cash, Checking Accounts, Money Market Accounts | |
| Savings Accounts and Certificates of Deposit | |
| Cash Surrender Value of Annuities, Life Insurance | |
| Other | |
| Investment Assets | |
| Retirement Accounts - Mutual Funds, Stocks, Bonds, etc. | |
| Non-Retirement Accts - Mutual Funds, Stocks, Bonds, etc. | |
| Real Estate Investments (not for personal use) | |
| Other | |
| Real Estate | |
| Personal Residence (Current Market Value) | |
| Vacation Home (Current Market Value) | |
| Farm (Current Market Value) | |
| Other | |
| Personal Property | |
| Furniture and Appliances | |
| Computer and Electronic Equipment | |
| Art, Antiques, and Collectibles | |
| Vehicles and Boats | |
| Other | |
| TOTAL ASSETS | |
| LIABILITIES | |
| Loans | |
| Home | |
| Vehicle | |
| Student | |
| Other | |
| Other Debt | |
| Credit Card | |
| Unpaid Bills | |
| Other | |
| TOTAL LIABILITIES | |
| TOTAL ASSETS MINUS LIABILITIES = NET WORTH |
Where Can I Find the Values?
Where can you find the market values of your assets and liabilities? Statements are a good place to start. Maybe you access all your financial accounts online and that makes it easy to obtain values on any given day. However, if you are the kind of person who likes paper, compiling all the statements at the end of a month or end of a quarter makes sense. Bank, investment, and loan account statements will likely be issued then.
Real estate and vehicle values are a bit trickier. Although they are not precise, real estate websites like Zillow or Trulia will give you an idea of the market value of your home, vacation home, or other property. Likewise, Kelly Blue Book or Edmunds websites are good places to start to obtain the market value of a vehicle. More research may be necessary for any valuable collections or jewelry. Items that have sold on eBay may give you an indication. There are so many websites to help but, at least initially, it may take a little time. In the long run, however, it will be worth it!
Why is a net worth statement valuable?
Your net worth is a big picture way to measure your overall financial health. Lenders use it as a gauge. Tracking your net worth over time is a helpful indicator of your financial stability. If you need to make a major financial decision, computing a net worth statement with the options you are considering might help you make a better decision. For example, would your savings be better spent to upgrade your kitchen to get a higher market value for your home or should you use those savings to pay down your credit card debt? Of course, there may be other factors involved in those decisions, too, but a net worth statement can be a valuable tool.
Beverly J Bowers, CFP®
