Why I do a monthly Net Worth Statement

When you put on a pair of pants and they’re fitting a little tighter than they were a few months ago, you may decide it is finally time to make a change and lose some weight. You step on the scale, document your weight, and then set yourself a goal of how many pounds you want to lose by what date. This is an effective way to set a goal because it has what I consider to be the most important aspects of goal setting: goals need to be measurable, specific, realistic, have a time-frame, and are able to be reviewed.

During meetings with clients I often ask them about their financial goals, and while some don’t have them, most of my clients have put together a goal of some kind. However, many of their goals don’t have one of the aspects mentioned above that I consider having importance when setting a goal, so then I go over doing a net worth statement with them.

A net worth statement is exactly what it sounds like: a statement that lists out all your assets and all your liabilities, and the difference is your net worth (see below for an example). I have clients with net worth’s ranging from in the tens of millions to negative hundreds of thousands of dollars, but that’s not the important aspect of this exercise. The most important aspect of this exercise is that it helps you measure where you currently are with your net worth. We then project your net worth forward using various inputs to determine a very specific and realistic goal using a pre-determined time-frame. Once we’ve established that goal, we can review it monthly, quarterly, semi-annually, or annually.

Personally, I update my net worth statement monthly. At the end of each month, I put down notes for myself explaining what happened that month so that I can look back years later and know exactly why my net worth went up or down for that month. When I analyze the trend of my net worth, whether that’s up or down due to various factors, I can analyze whether I need to change my saving and investing inputs to reach the goals I’ve set in the time-frame I’ve set out.

If you’d like assistance in learning more about putting together a net worth statement, or learning how to effectively use it to project out your financial goals, you can always reach me at thole@mlhcpas.com.

Example:

Assets

Checking Account $10,000

Savings Account $20,000

Investments $20,000

Home Value $500,000

Total Assets: $550,000

Liabilities

Credit Cards $2,000

Student Loans $18,000

Car Loans $30,000

Mortgage $400,000

Total Liabilities: $450,000

Net Worth: $100,000