Importance of a Net Worth Statement

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

As summer comes to an end and school starts back up, I’ve been reminded yet again of the power a list can have.  Chances are your son or daughter was given a list of school supplies he or she was expected to purchase prior to school starting. Probably a much longer list than you would have liked!  On top of that, I’m sure you had to do some back-to-school clothes shopping, make a hefty grocery trip to account for lunches each day, plan your calendar with your work schedule and finish last minute things around the house before the craziness of the new school year started.  Can you imagine not having a list for any of these tasks or items?  Pure chaos!  Even with a list, I bet you still felt overwhelmed!  Studies have proven time and time again that lists help us reduce stress and dramatically increase the likelihood of getting the things done we want to accomplish.  With that being said, the significance of a list is no exception when it comes to your personal finances!

What’s in a Net Worth Statement?

One of the “cornerstone” documents we utilize with clients is a personal net worth statement.  Simply put, your personal net worth statement is an organized list of your assets and liabilities that helps you determine where you’re at, where you want to be, and things that can be done now and in the future to help you get there.  We start with the assets you own and break them out as cash accounts (checking/savings), investment accounts (after-tax brokerage accounts), retirement accounts (IRA, Roth IRA, 401k) and hard assets (real estate, automobiles, jewelry, art, etc.).  We then itemize any outstanding liabilities (mortgage, auto loans, student loans, credit cards, etc.) to see what your total debt load looks like.  When you take the difference between your assets and liabilities, we arrive at your net worth. 

How Can my Net Worth Statement Help?

It’s truly amazing how powerful such a simple, working document can be and how big of an impact it can have in a client’s life.  We track your net worth statement each and every year to look at the progress you’ve made and help us identify certain areas that need attention.  For example, we may notice that 100% of the assets you’ve earmarked for retirement are held within your Traditional 401k.  With 10 years prior to retirement, we may recommend that you start saving additional dollars into an after-tax brokerage account that will be used to help fund your retirement goals so the money isn’t taxed as heavily when withdrawn.  This is just one example of many that we can identify by reviewing your personal net worth statement each year together. 

If you have never taken the time to make even a rough draft of your own personal net worth statement, I would highly encourage you to do so.  I think many of us are hesitant to do this because deep down, we know we won’t like what we’ll see.  Even if this is true, how can you make a change if you don’t start somewhere?  A personal net worth statement is, in my opinion, one of your most important “lists” you will make and is a document everyone should have.  Don’t hesitate to reach out to us if we can help you get started or analyze your own net worth statement!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. You should discuss any tax matters with the appropriate professional.