When last I blogged to you, I mentioned that we’d be spending the next several posts talking about financial issues. We’ll start that today by looking at how to develop a net worth statement. You may wonder why we aren’t starting with your budget, but a net worth statement gives you a bigger picture. You can make ends meet every month without improving your overall financial condition. that’s where net worth comes in.

Put simply, net worth is a listing of how much you own minus how much you owe. On the asset side (what you own), you would include things like your house (if you own it),  bank accounts, mutual funds, retirement accounts, bonds, and the like. Some people might include personal property (like your car) as well, but I would hesitate to include anything you couldn’t sell to raise cash. So you might include a collection (coins, stamps, etc.) that has value on the market, but not your well-organized collection of matchbooks.

The debit side (what you owe) should include any outstanding debts — mortgage, credit cards, student loans, car loans, etc. If you owe it, it goes on the list.

Once you have both assets and debits listed, add each side up. Subtract the sum of the debits from the sum of the assets. The resulting number is your net worth. If the result is a positive number, you are on the right track. If your number is negative, you need to do everything possible to increase your assets and decrease your debts. That’s where your budget comes in. And that will be the topic of my next post.