Knowing Where You Stand

Calculating Your Net Worth

Facing the economic reality of your transition is number one. While this may not be the primary motivating factor in your transition, it is often the area that requires immediate attention and action.

A net worth statement is simply a listing of assets you own and money you owe. You will need to create a net worth statement in order to determine what you have available to fund your career transition.

Most of us have applied for a bank loan or a credit card. What we want to do now is recreate the section of the application that looks at your net worth. It might be a good idea to get the last credit application you completed (if you did it recently), since it may have much of the information we will be discussing.

Calculating your net worth is relatively easy and should not take you more than an hour or two. Here's the calculation, plain and simple:

ASSETS − LIABILITIES = NET WORTH

An asset is something you own, such as a mutual fund, your 401(k) plan balance, your home or your car. A liability is a loan or something you owe, such as a mortgage or the unpaid balance on your credit card. When you complete the net "Net Worth" worksheet, you separately total your assets and liabilities. By simply subtracting your liabilities from your assets, you have your net worth.

You then need to analyze your net worth to determine what implications it has for your career transition.

What Assets Do You Have?

Spend a few minutes gathering the following information:

  • bank accounts
  • IRAs
  • 401(k) or 403(b) plans
  • money market funds
  • other employee retirement plans, qualified and nonqualified
  • mutual funds
  • Keoghs
  • individual stocks
  • other self-employed retirement plans
  • individual bonds
  • real estate values
  • life insurance policies (cash value)
  • thrift plans
  • business interests
  • vehicles/personal property
  • employee stock option accounts
  • any other information on assets you own

What Are Your Assets Worth?

Fair market value is the cash equivalent of the asset's value—what a willing buyer would pay a willing seller. List all your assets at fair market value. You can obtain most of your asset values from your statements. If you need to, you can find the value of your stocks and mutual funds in your local newspaper's business section.

What do you do about assets like real estate, personal property (jewelry, furnishings, etc.) or vehicles? You need to estimate their fair market value. Simply put, fair market value is what a buyer would pay for the asset.

For what price could you sell your home? What could you get for your gold watch? All these are subjective amounts because you are not selling these assets now, so estimate the best you can. If you need assistance, you can seek independent sources like professional appraisers for real estate and jewelry. Local real estate brokers may be able to help you assess the value of your home. You can also go to town hall and find out the cost of comparable homes recently sold in your area. Refer to the N.A.D.A. Official Used Car Guide (www.nada.com), the Kelley Blue Book (www.kbb.com) or Edmunds.com to estimate the value of your car.

Furniture, clothing, old worn-out cars, and other personal property usually are not worth much, so be conservative in your estimates.

How Much Money Do You Owe?

Your liabilities include all your outstanding debt. Spend a few minutes gathering the following information. If you do not have a current statement, you can usually make a quick phone call to get the information you need.

  • mortgage loans
  • installment loans
  • home equity loans
  • 401(k) plan loans
  • other real estate loans
  • margin loans on brokerage accounts
  • car loans
  • student loans
  • credit card obligations
  • policy loans on life insurance policies
  • charge accounts
  • loans from family members
  • any other information on loans or debt
  • other business debt

Completing this part of the net worth process is usually not as much fun as completing the asset part, but it is just as important.

Current Outstanding Balance

Put the current outstanding balance of each loan on your net worth statement. This is the amount of the loan that remains unpaid, not the amount you originally borrowed.

For example, you borrowed $100,000 to buy your home, and you have been making mortgage payments to date. Your mortgage balance is now $96,000. That's the amount you should put in the liability section of your net worth.

IMPORTANT NOTE: When reviewing your outstanding debt, be on the lookout for any lump-sum payments that may be due in the near future. Refinancing obligations such as balloon mortgages may be difficult if you are unemployed. Do not ignore these debts. Develop a plan of action to deal with them in a timely fashion. If you believe you're going to have a problem, contact your creditors before they contact you.

Prepare Your Personal Net Worth Worksheet

The following are the instructions for the easy-to-use "Net Worth" worksheet. Print out the worksheet (of course, you may use whatever format you like, as long as it is easy to read and understand). Make sure you put the current date at the top of your net worth statement.

Net Worth Statement Instructions

ASSETS (What You Own)

Explanation

Cash and cash alternatives

Checking accounts, savings accounts, CDs, money market funds, etc. at fair market value.

Individual stocks and stock mutual funds

Total dollar amount at fair market value.

Individual bonds and bond mutual funds

Total dollar amount at fair market value.

401(k)/403(b)/Section 457 plans

The total balance in your account(s).

IRA or IRA/SEP

The total balance in your account(s).

Keogh

The total balance in your account(s).

Annuities

Account balance.

Employee stock options

Include the total difference between the stock's market value and the exercise price for all vested stock options.

Other retirement plan accounts

The total balance in your account(s). Thrift plans, profit sharing plans, defined contribution plans, etc.*

Primary residence

Your house, valued at what you could sell it for today (fair market value).

Other real estate

Rental properties, vacation home, etc., at fair market value.

Cash value insurance

Total cash value of all policies.

Personal property

Furniture, jewelry, furs, silver, antiques, collectibles. Not what you paid, but what you could sell it for today (fair market value)

Vehicles

Cars, trucks, boats, etc. What they are worth today. Do NOT include leased vehicles, only what you've bought.

Business interests

Your business(es), valued at what you could sell it (them) for today (fair market value).

Other assets: _____________________

Anything else you own.

TOTAL ASSETS

Add up all the above assets.


* For deferred compensation plans, include the amount you will be entitled to if you terminate employment.

LIABILITIES (What You Owe)

Explanation

Primary residence: Mortgage loan

The current mortgage balance on your primary residence.

Primary residence: Other loans

The amount left on all other loans you have taken out against your primary residence (home-equity, second mortgage, etc.).

Other real estate loans

The amount left on all other loans you have taken out against other real estate (rental property, vacation home, etc.).

Total vehicle loan balances

The amount left on your car, truck, boat loans, etc.

Total credit card balances

Include only the balances you have not paid off.

Total installment loan balances

Include only the balances you have not paid off.

Total retirement plan loan balances

Include only the balances you have not paid off.

Taxes due

Any taxes due.

Other liabilities: _____________________

Everything else you owe.

TOTAL LIABILITIES

Add up all the above liabilities.

NET WORTH

Assets less liabilities. This gives you your net worth.

Use the "Net Worth" worksheet for your own calculation.

Share Article:
Add to GooglePlus
Investment and insurance products and services offered through INFINEX INVESTMENTS, INC. Member FINRA / SIPC. Heartland Planning Associates is a trade name of Heartland Bank. Infinex is not affiliated with the bank. Products and services available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of, nor guaranteed by, any bank or bank affiliate. These products are subject to investment risk, including the loss of value.
BrokerCheck