by Michele Cagan, CPA
Creating a personal financial inventory worksheet is the first step toward creating a unique guide on which you'll base all of your financial decisions. Although this initial inventory will be frozen in time, you'll revisit and reconstruct it regularly to chart the changes. At first, you'll probably need to revise it every three to six months; later, an annual revision will usually suffice. Even more important than looking at your personal balance sheet, it is vital that you understand what goes into it. This knowledge will carry you toward setting (and meeting) achievable financial goals.
Your net worth equals the difference between what you have (assets) and what you owe (liabilities). Your assets include things like bank accounts, investment portfolios, retirement accounts, the value of whole life insurance policies, the market value of real estate and vehicles, and any other property, such as jewelry. Liabilities encompass everything you owe, typically separated into short-term debt and long-term obligations. Short-term debt includes your regular monthly bills, credit card balances, income taxes, and anything else you might have to pay within the next twelve months. Long-term debts include mortgages and any other installment loans, such as those for your car. In taking stock of your assets, use current market value for things like real estate and vehicles.
Good news! In addition to your savings and other accounts, you can also count money that is owed to you by other people as an asset. As long as this money is coming your way in the foreseeable future, it can be regarded as part of your financial inventory.
While getting a formal appraisal may give you the most accurate assessment, it's not necessarily the most efficient way to proceed. To get approximate market values for your house, you can check out your state's property tax assessment website. For your car, try the Kelley Blue Book (online at www.kbb.com). For smaller items, you can determine which may have significant resale value. Again, you can get a professional appraiser, or you can try looking up similar items on a website like eBay to get approximate market values. Once you've ascertained reasonable values for your belongings, add them to your cash and investment accounts for a total asset figure.
Once you've figured out your assets, it's time to take an honest look at your liabilities. For now, we'll just add in your true debt and leave out your regular monthly bills. In this section of your worksheet, include the outstanding balance of your mortgage and other installment loans, everything you owe on credit cards, and any unpaid personal loans. Total these and you have an accurate picture of your current debt load.
To calculate your net worth, subtract your total liabilities from your total assets. The result shows what you'd have left if you sold or cashed in all your assets and paid off all your liabilities. Here are some steps you can follow to calculate your net worth:
List all of your liquid (cash-like) assets: bank accounts, CDs, stocks, bonds, mutual funds, etc.
List your retirement accounts: every IRA, 401(k) plan, ESOP, etc.
List all of your physical assets at current market value, starting with your home, other real estate you own, vehicles, and any valuable smaller items (like jewelry) that you choose.
Add the value of all these items to get your total assets.
List all of your outstanding debts, and add those to get your total liabilities.
Subtract your total liabilities (step 5) from your total assets (step 4) to get your personal net worth.
Revisit your worksheet every three to six months at first, then at least once a year going forward, to adjust for any changes.
If the number you came up with as your net worth is greater than zero, you have a positive net worth, meaning you'd still have assets left if you settled all outstanding debts. If your bottom line is less than zero, you have a negative net worth, meaning you would still owe money even if you liquidated all your assets and put that cash toward your debts. Regardless of your personal bottom line, you now have a solid base to work from and will be able to make your financial plan accordingly.