What goes into your Net Worth Statement?
By Matt - Monday, February 12th, 2007
Most people measure success by their net worth statement and I have to agree with this practice. But what exactly goes onto a net worth statement? Well after posting my most recent results in January I had a couple people question why I had what I had on my net worth statement and they were very valid questions. So along that vein I here is what I have been putting on my net worth statements:
Assets
- Mutual Funds, Stocks, RRSPs (this is for Canadians, it’d be your 401K or Roth IRA for Americans)
- Cash
- Car
- House/Property
- Other Big Ticket Items (in my case my boat goes here)
- These are the items I have but I’m sure there are other forms of assets that I simply haven’t encountered that should be here.
Liabilites
- Credit Card Debt
- Loans (this includes Car Loans)
- Mortgage
For the most part your assets should be larger than your liabilities or you’re not doing all that great when it comes to your net worth. In my case I’m barely above the $0 marker. And a lot of people wonder why I have my car and boat in the assets column. Currently I owe more on my car than its worth but I have a line item in my liabilities column for the car loan which is balanced by the wholesale value of the car. For me the car has value and although its continuously depreciating it still has a sellable value. If I couldn’t sell the car at all then the item wouldn’t go there. Now I also don’t use the car on a daily basis so the depreciation is far lower than if I used it to drive to work.The next item that even I am starting to question is the boat, the boat does have a sellable value but what isn’t captured in the net worth statement is the fact that this boat costs me money in marina fees each year though I guess this could be covered off by lower cash and assets. What I think should be on your net worth statement is anything that has a significant sellable value, for example your $3,000 plasma TV wouldn’t get you anything close to that value if you sold it maybe a small fraction. A car or a boat on the other hand will drop in price over time but still retain a significant amount of value.
Now I am by no means an expert in this, some people would say I should be adding all items that have value like books, DVDs and kitchen appliances but for me you would need to sell a lot of these items to gather any real worth if you got any at all. But based on the fact that I am not 100% sure what should and shouldn’t be on this list I think I am going to have to do some investigation and in the end I’m sure that not everyone will agree what should and shouldn’t be on the list. At least we can all agree that assets are items that bring you money or worth and liabilities are those that take away (and yes by that token the car and boat shouldn’t be there). I will do some homework and post about this later in the week once I’ve straighten this out in my own head a bit more.
Technorati Tags: net worth, liabilities, assets, determining net worth
This entry is filed under Budgeting and Planning.
2 Responses to “What goes into your Net Worth Statement?”
1 Enough Wealth says:
February 12th, 2007
at 7:37 pm
We can’t all agree that “assets are items that bring you money or worth and liabilities are those that take away” - this is the Robert Kiyosaki mis-definition, based on everyday colloquial use of the accounting terms “liability” and “asset”.
An asset can be cash-flow negative, but it’s still an asset if it has a value. As the most obvious example, consider cash (coins and notes) - it doesn’t generate any income and you often have to buy a wallet or purse to store it in, yet cash is definitely still an asset! Bullion, coins, art works are similar examples of assets that are usually cash-flow negative.
I’d count the car and boat as assets, and the relevant outstanding debts as liabilities when calculating your net worth. The fact that owning a boat with considerably running costs is a hindrance to increasing your net worth may ndeed make it a “liability” in the non-economic sense, but it’s still an asset from an accounting point of view.
Regards
http://enoughwealth.blogspot.com
2 ES says:
February 14th, 2007
at 3:46 pm
i wouldn’t count the car if you can’t live without it. in southern california you cannot without a car, so i don’t count it at all. the same case could be made for one’s house. if you live by yourself in a $6million mansion, it could be called an asset, however if you live in a 400 sq ft studio,its not really an asset. You always need to live somewhere, right?
i also wouldn’t count the tvs, dvds and other crap either. (unless thats all you have!)
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