Assets Liabilities and Net Worth

Assets Liabilities and Net Worth

Assets Liabilities and Net Worth

Assets liabilities and net worth reveal your financial position as of a specific date, and they are used to construct the personal statement of financial position, or “balance sheet.” Such a statement is a good measure of financial health and will help you identify what assets may be available to meet retirement income needs.

What are Assets?

Assets typically include cash and cash equivalents, invested assets (stocks, bonds, IRA’s, investment real estate, etc.), and use assets (residence, summer home, automobiles, furniture, artwork, jewelry, etc.). Collectively, these assets are the things th client owns – even  if they are not fully paid for. Assets should be valued at their current fair market value.

What are Liabilities?

Liabilities are what you owe. Credit cards, bank loans, mortgages are all included on the left side of your balance sheet as liabilities. Most financial analysts separate liabilities into short-term liabilities (payable within one year) and long-term liabilities (payable over a period greater than one year). The current balance of each short-term and long-term liability is included on the statement of financial position. Ongoing payments such as mortgage payments are included on the cash flow statement.

How do I calculate my net worth?

Net worth indicates the monetary value the client would have if all assets were converted to cash at their fair market value listed, and then used to pay off all outstanding debts.

Net worth is a residual figure and is determined by a simple formula:

Assets – Liabilities = Net Worth

Assets Liabilities and Net Worth

To illustrate the use of a statement of financial position, let’s construct a statement using your assets and liabilities.

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Assets Liabilities and Net Worth

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