The net worth is the difference between your assets and liabilities. If you will sell all your
assets and pay off all your debts, the amount left over would be your net worth. Determining your net worth is important for financial planning because
it allows you to assess your wealth and financial capacity and it should be the first step you need to take to master your finances.
Net worth was one of the first functionalities that we have implemented in MoneyBench app. Single point and
historical charts allow you to assess the financial health easily if you take a responsibility to track your finances seriously. An increase in
net worth is a favorable trend increasing your financial abilities, and a decrease in net worth is a reduction of your wealth and a good reason
to review your financial course. You can estimate your net worth by drawing a personal balance sheet in Excel or Numbers:
| Assets |
Jan |
… |
Dec |
| Money |
|
|
|
| - Cash |
|
|
|
| - Checking accounts |
|
|
|
| - Savings accounts |
|
|
|
| Investments |
|
|
|
| - Mutual funds |
|
|
|
| - Stocks |
|
|
|
| - Bonds |
|
|
|
| - Other |
|
|
|
| Market value of house/real estate |
|
|
|
| Automobile(s) |
|
|
|
| Total assets |
|
|
|
| Liabilities |
Jan |
… |
Dec |
| Credit cards |
|
|
|
| Bills outstanding |
|
|
|
| Auto loans |
|
|
|
| Mortgage loans |
|
|
|
| Taxes |
|
|
|
| Total liabilities |
|
|
|
|
Jan |
… |
Dec |
| Net worth (assets - liabilities) |
|
|
|
Creating a personal balance sheet for year will help you in tracking your personal wealth over time and enable you to see relationships among the
balance sheet items. Later you will be able to create a less detailed group balance sheet for several years:
| Assets |
2010 |
… |
2017 |
| Money |
|
|
|
| - Cash |
|
|
|
| Investments |
|
|
|
| Market value of house/real estate |
|
|
|
| Automobile(s) |
|
|
|
| Total assets |
|
|
|
| Liabilities |
2010 |
… |
2017 |
| Credit cards |
|
|
|
| Auto loans |
|
|
|
| Mortgage loans |
|
|
|
| Taxes |
|
|
|
| Total liabilities |
|
|
|
|
2010 |
… |
2017 |
| Net worth (assets - liabilities) |
|
|
|
Finally, your will be able to make some charts and see some trends. It is better to use stacked bar char and draw all groups instead of one net worth
line like we did in MoneyBench app because there are several ways to increase net worth:
- Rise in the value of stocks, bonds, etc. or real estate
- Paying off debts
- Increasing your salary and other types of income
- Decreasing your living expenses
While paying off debts, income and expenses directly change your financial abilities, other types of assets like securities and real estate appreciation
have only a potential value.
