Why you need a net worth statement
You may be thinking “I am NOT in a position with my finances where I need a net worth statement. I’m just worried about paying down debt and making ends meet!”. I definitely understand that feeling- but, if you are in that boat I believe now is the perfect time to fill one out. A net worth statement is not something only millionaires need; this simple worksheet can benefit everybody. A net worth statement is simply the difference between what you own and what you owe at any given point in time. Let’s take a look at some of the benefits a net worth statement provides, regardless of where you are financially.
Why?
Brings everything to one place: Simply having all of your assets (what you own) and debts (what you owe) in one place may be the most eye opening part of completing your net worth statement. We all have so many accounts floating around it can be hard to understand where you are without laying it all on the table…or spreadsheet. You may have a checking account, savings account, car loan, mortgage, student loan, investment account, retirement, cash in a safe, etc. Having all of this listed out in an organized view will give you a very clear picture of where you are right now, which will help you make a plan for where you want to be in the future.
Puts things in perspective: This can work one of two ways; either you list everything out and think “oh, I’m in better shape than I thought” or you think “oh crap”. Regardless of your initial reaction, you have taken a big step towards managing your money wisely. Now you can make financial decisions with a sense of confidence on how it will impact you.
Allows you to have a vision for the future: It is really hard to plan for the future when you don’t know where you are starting from. Your net worth statement will provide that starting point and let you make a plan based on what is most important to you.
Clear feedback on which direction you are moving: Without tracking both sides of the equation, assets and liabilities, you don’t really know if you are making progress. For example, if you are not seeing progress paying down student loans but your assets continue to increase from retirement contributions and transfers to your savings account, you are still moving in the right direction. Seeing this should be an encouragement and give you something to think about: should you move some of that money in savings to pay off your student loan?
How?
We keep ours in a protected Excel file and update it on a monthly basis (download template). You may update yours less frequently based on your situation but my wife and I have some short term goals we are working towards so we want to see how we are staying on target. Outside of these short term goals I would plan on updating this every quarter.
On the first of every month, I open the Excel sheet and duplicate the previous months tab and rename it based on the current month, i.e. May 2020 (or Q2 2020 for quarterly updates). From there I will log in to our bank account, mortgage account, investment accounts, etc. to get updated numbers. After plugging those numbers in I’m done, it’s really that quick.
I will take a few minutes to look back over the previous months to see how we are trending. If everything looks good I click save and close it out. I don’t want to spend too much time focusing on these numbers- the purpose is to understand where you are and move on, don’t get too obsessed with the spreadsheet.
Summary
Regardless of your financial standing it is critical to know where you stand, and a net worth statement is a great tool to get you there. I know the thought of uncovering everything and seeing it in one place can be overwhelming, but use this as a way to take small steps towards your goals.
Please remember, your net worth has absolutely ZERO impact on your worth as a person.
You can download a template of the file we use here.