Why You Need a Personal Net Worth Statement
If you are serious about getting out of the financial mess you are in right now, you absolutely MUST fill in a personal net wealth statement ASAP.
Sorry for the shouty capitals, but this document will drive your entire wealth building journey and is the number one reason I’ve been able to build wealth myself, even as a single mother!
I can actually see my personal net worth building before my eyes.
Very encouraging when you feel like the opposite is happening.
It also helps me make better spending choices as I know it will set me back at the end of the month.
Once you are tracking your personal wealth and make it a priority, it’s encouraging to see it go up and keeping on track gets easier the longer you stick with it.
While a higher level of income helps, people generally become wealthy because of their habits, not their earnings.
Celebrities such as Johnny Depp, David Hasselhoff, and Larry King have all had public financial troubles despite earning in the millions.
By learning to track your personal net worth and adjusting your money habits you can change your financial trajectory for good.
So let’s get started.
What is a Personal Net Worth Statement?
No, it’s not something that’s reserved for the super-rich. You can have one too!
A net worth statement measures what you own less what you owe. It measures your personal equity (wealth) and is your total assets less all your debts.
Think of it as the money left over once you sell everything of value and pay all your outstanding bills.
As you may already know, an asset is something of value you could sell if you needed to. Assets usually can create an income of their own like a real estate, stocks, bonds and money in the bank.
Debts are pretty self-explanatory, things like credit cards, store credit, personal & car loans, mortgages etc. These usually incur interest charges causing negative wealth to increase. You’ll want to get rid of these asap.
A personal net worth statement is a snapshot of your entire financial position at a certain point in time.
For companies, they call this the balance sheet and there’s a reason it is one of three critical documents for determining the financial health of a business. (Income Statement & Cash Flow Statements are the others)
A balance sheet is used in a variety of ways, including helping investors decide whether to buy shares, obtaining finance and as a measurement of company performance.
In our scenario You Inc., we are going to use ours as the first point in our financial roadmap.
As the benchmark to measure your future progress.
The before picture if you like, after being once you are gloriously rich!
Here’s a simplified example:
PERSONAL NET WORTH STATEMENT
You can see that adding up all the assets on the left being $453,587 less debts of $291,500 this person is left with a personal net worth of $162,087.
What if I’ve Got Nothing to Put in My Net Worth Statement? 🙁
Don’t despair. Not everyone starts off with a positive net worth.
In fact, some people actually aspire to have a zero net worth as they are currently buried in debt!
Starting is the important part as you can’t track what you don’t measure.
While it can be a little depressing to put it all on paper, it’s important to move out of denial and take action.
Even if that’s just writing it all down.
If you make it a habit every month to fill this in, you’ll find yourself encouraged to save a little more and when you see the needle moving forward (even just a tiny bit) it’s very rewarding.
Being a money nerd I love to see if I can beat last month’s increase even if it’s by $5!
Moving forward and getting wealthier every month is the aim (even at a snail’s pace)
How Does This Help Me Get Wealthier?
It’s the first step in building wealth as you have essentially drawn a line in the sand and committed to improving your situation.
Like I said above, the intention and commitment are what’s important. Habits create wealth not necessarily income (although that helps obviously!)
Once you have calculated your personal net worth and committed to tracking it, you’ve essentially laid the foundation for your financial castle and with small consistent steps over time you’ll see great results!
Once you identify where you currently stand, you are able to then set financial goals and make a plan to achieve them.
For example in the situation above this person may make a commitment to have their $1,500 credit card paid off in full in two months’ time.
This will nudge the net worth by more than the $1,500 outstanding, due to the interest being paid as well as the balance.
As they are no longer paying the high credit card interest their next move would be to start paying down the mortgage to reduce the duration of the loan.
Even if they can knock a few years off, this results in a large interest saving (due to the compounding effect) having a massive impact on wealth over time.
Sounds simple right?
So you can see how we can use it to make smarter decisions. How much clearer decision making is when everything is written down and organised.
Without the personal net worth statement, it’s easy to drown in the details.
If you get triggered opening your bank statements this simple routine will help build your financial confidence and help you feel capable again.
Using this statement enables you to prioritise your financial commitments and ensures you are putting your financial oomph where it’s going to have the greatest impact.
Ok, I’m in. How Do I Get Started?
Here is a handy net wealth tracker and a bonus simple budget template for you to make a start!
Download it and print out a few copies (there’s a bonus budget template there for you too!
Steps you need to follow:
1. Gather all bank and credit card statements
2. If you haven’t had your house valued recently organise a real estate agent to give you an appraisal or look up current sales in your area online. (Do this step annually, not monthly)
3. Look up the company and how many stocks you own from your paperwork or broker and get the current market value on www.yahoo.finance.com.
4. Include any retirement savings as well, so be sure to grab your latest statement or obtain the value online.
5. Include any significant furniture and valuables (eg jewelry, collectibles)
6. Don’t forget to include your car (at current market value not what you paid for it)
Spending 10 minutes gathering the information and filling this in could change your whole financial future!
The personal net worth statement and the budget template are all you need to get started on tracking your wealth and improving your financial situation. Forever!
So I want you to set an appointment in your diary to do this monthly.
Watching your personal net worth grow every month is so inspiring and it helps you stick to the new plan of saving over spending.
As a result, creating a new habit that will enable you to become wealthy over time.
If you find this helpful please comment below and let me know! Or if you need any help filling them in, email me and I’ll walk you through it.
Anything to help a sister build wealth 😉