Determining your own net worth statement

Posted: Saturday, Jan 26, 2008 - 06:22:35 pm PST
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By CHRIS BARONE 

Developing a plan to help you reach your financial goals must start with a comprehensive look at where you are right now. If you are seeking to reach a financial goal you should start by compiling a net worth statement that provides an inventory of all assets you own and liabilities you owe. A net worth statement provides a quick snapshot of your financial health right now, building the foundation upon which a comprehensive financial plan can be based.

Elements of a net worth statement include: a breakdown of all your cash and investment assets as well as retirement assets, business assets, real estate (including your residence) and other personal property as well as all of your debts, such as credit cards, mortgage and other loans.

A net worth statement can uncover financial issues -- ranging from inadequate portfolio structure to a lack of an estate plan -- that could impede you from reaching your financial goals. For example, a listing of all your investment assets, including those of your spouse, may show that you are not properly diversified. As a result, you may be in danger of not reaching your financial goals or of taking on more risk than you are comfortable with. In some cases, you may discover that some of your investments may overlap, potentially jeopardizing the attainment of your financial objectives. A net worth statement also can help your financial consultant devise strategies to reduce your debt, freeing more of your assets for investment.

A net worth statement not only helps you to identify your assets and liabilities, but it can also help you to define and prioritize your goals. How many years will you have until your children enter college? Will you need to contribute less to your retirement plan and more to their college savings plan to fund their education? A net worth statement can also identify where your assets are invested and can help you to diversify your holdings. For example, you may be able to save on your tax bill by shifting some investments from stocks to tax-free or tax-deferred investments.

Once a net worth statement is completed, additional analyses may be required to determine the specific recommendations necessary to reach your financial goals. Additionally, just as you might consult a doctor for a second opinion, a financial consultant can use a net worth statement to determine if your investment strategy is meeting your financial needs. It's a good idea to have a professional prepare a net worth statement as a record of your financial situation that can be used by your spouse in the event of your death, by your attorney in drafting a will or trust, or by a lender in approving a loan.

The net worth statement is akin to the medical history you give to your doctor so he or she can make sound decisions regarding your treatment. Just as you would not want your doctor to be forced to guess how to treat a medical condition, you don't want your financial consultant to prepare financial strategies without having all of the pieces of the puzzle.

Chris Barone is the Branch Manager and Vice President - Investments for A.G. Edwards & Sons Inc. in Coeur d Alene. He can be reached at (208) 765-8002.