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What is a Statement of Net Worth?
A statement of net worth provides a snapshot of a person’s or business’ financial wealth. Statements of net worth are calculated by adding the value of all non-financial and financial assets owned by them and then subtracting the value of all its outstanding liabilities.
A statement of net worth is essentially a snapshot of a person’s or businesses’ financial position at any given point in time.
You can read more on net worth here .
How To Calculate a Statement of Net Worth
There are four steps to writing a statement of net worth:
- Calculate value of your assets : List your assets on a net worth statement. Using the current market value for each item, calculate the total value of all assets owned by you. Items like insurance policy also have a cash value which can be found on a schedule in the policy. Similarly, mutual funds, stocks, and bonds also have cash values that can be found on their quarterly reports.
- Calculate your Liabilities : Your liabilities should also be listed on your net worth statement. The balance owed on debts or credit cards, principle owed on a mortgage or real estate loan is considered a liability.
- Calculate the value of assets after subtracting liabilities: You will need to subtract the value of your liabilities from the value of your assets to determine your net worth. A negative net worth occurs when the total debt is more than the total assets. It is a sign that the company or individual needs to reduce their debt.
- Monitor your net worth annually: Complete a net worth sheet annually as your assets and liabilities might change or the values might change over time.
What’s Included in a Statement of Net Worth
A statement of net worth largely includes assets and debts of an individual or business. Here are some types of assets and debts that might be included in a net worth statement:
- Savings & Checking Accounts
- Life Insurance Policy
- Retirement Funds
- Personal Property
- Real Estate
- Credit Card Bills
- Mortgage Balance
- Car Loans
- Unpaid Taxes
- School Loans
A statement of net worth will include balance sheets, income statements and cash flow statements.
- Balance sheets : Balance sheets provide detailed accounting of a company or individual’s assets, liabilities and shareholders’ equity. Shareholders’ equity refers to the value that will be left if a company sells all its assets and pays off all its liabilities. This leftover money will belong to the shareholders of the company.
- Income statements : An income statement shows how much revenue a company made in a certain time period. In the case of an individual, it shows the amount of money earned by the individual in the time period.
- Cash flow statements : Cash flow statements report on a company’s inflows and outflows of cash. Cash flow statements can help determine if a company generated any cash. Cash flow statements can reflect the changes over time in income statements and balance sheets.
You can learn more about preparing your own statement of net worth here .
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Types of Statements of Net Worth
Types of statements of net worth can differ by entity. Companies, individuals, governments and countries use net worth statements in different ways. Here are how net worth statements are used by different entities:
Net worth in businesses is also known as equity. It is based on the value of assets and liabilities at the value expressed on financial statements. If items on the balance sheet do not express their true value, the net worth will also be inaccurate. If the accumulated losses exceed the shareholder’s equity in a company, the net worth becomes negative. Net worth here doesn’t express market value of the company as it may still sell for more if traded.
For individuals, the net worth statement refers to the net economic value or the individual’s total assets minus the liabilities. Net worth statements can help individuals determine their financial status and plan for their future financial goals.
A government’s net worth, or a balance sheet of all assets and liabilities, is used to measure a government’s strength. Most governments use an accrual-based accounting system to provide transparency. Some might utilize cash accounting to better predict future fiscal events. Consistent accounting is necessary to determine the total net worth of a government.
A country’s net worth is the total net worth of all companies and individuals residing in the company plus the government’s net worth.
You can read more on types of statements of net worth here .
When Do You Need a Statement of Net Worth?
A net worth statement can help you measure progress towards long term financial goals. It can also help you keep track of your debts. If you are building wealth, you will also see your net worth statement changing. Having multiple savings, investments and debts can be difficult to manage. A net worth statement can help see your total financial situation.
A net worth statement also contains the value of your home and contents and can help you decide the homeowner’s insurance you will need to purchase. The total of your liquid assets can also provide information on how prepared you are for an emergency. A statement of net worth can also help you analyze your retirement savings or create future financial plans.
Companies use statement of net worth to assess the value of the company. Governments and countries also use statement of net worth to assess government debt.
Statement of net worth can often be required by lenders or investors to assess risk in providing an individual or business a loan. Scholarships and financial aid applications can also require net worth statements to assess eligibility. For the deceased, net worth statements can be used to assess value of their estate when in probate.
You can read more on net worth statements here .
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Meet some of our Statement of Net Worth Lawyers
I focus my practice on startups and small to mid-size businesses, because they have unique needs that mid-size and large law firms aren't well-equipped to service. In addition to practicing law, I have started and run other businesses, and have an MBA in marketing from Indiana University. I combine my business experience with my legal expertise, to provide practical advice to my clients. I am licensed in Ohio and California, and I leverage the latest in technology to provide top quality legal services to a nationwide client-base. This enables me to serve my clients in a cost-effective manner that doesn't skimp on personal service.
I am a 1984 graduate of the Benjamin N Cardozo School of Law (Yeshiva University) and have been licensed in New Jersey for over 35 years. I have extensive experience in negotiating real estate, business contracts, and loan agreements. Depending on your needs I can work remotely or face-to-face. I offer prompt and courteous service and can tailor a contract and process to meet your needs.
Tim advises small businesses, entrepreneurs, and start-ups on a wide range of legal matters. He has experience with company formation and restructuring, capital and equity planning, tax planning and tax controversy, contract drafting, and employment law issues. His clients range from side gig sole proprietors to companies recognized by Inc. magazine.
For over thirty (30) years, Mr. Langley has developed a diverse general business and commercial litigation practice advising clients on day-to-day business and legal matters, as well as handling lawsuits and arbitrations across Texas and in various other states across the country. Mr. Langley has handled commercial matters including employment law, commercial collections, real estate matters, energy litigation, construction, general litigation, arbitrations, defamation actions, misappropriation of trade secrets, usury, consumer credit, commercial credit, lender liability, accounting malpractice, legal malpractice, and appellate practice in state and federal courts. (Online bio at www.curtmlangley.com).
Real Estate and Business lawyer.
Davis founded DLO in 2010 after nearly a decade of practicing in the corporate department of a larger law firm. Armed with this experience and knowledge of legal solutions used by large entities, Davis set out to bring the same level of service to smaller organizations and individuals. The mission was three-fold: provide top-notch legal work, charge fair prices for it, and never stop evolving to meet the changing needs of clients. Ten years and more than 1000 clients later, Davis is proud of the assistance DLO provides for companies large and small, and the expanding service they now offer for individuals and families.
Braden Perry is a corporate governance, regulatory and government investigations attorney with Kennyhertz Perry, LLC. Mr. Perry has the unique tripartite experience of a white-collar criminal defense and government compliance, investigations, and litigation attorney at a national law firm; a senior enforcement attorney at a federal regulatory agency; and the Chief Compliance Officer/Chief Regulatory Attorney of a global financial institution. Mr. Perry has extensive experience advising clients in federal inquiries and investigations, particularly in enforcement matters involving technological issues. He couples his technical knowledge and experience defending clients in front of federal agencies with a broad-based understanding of compliance from an institutional and regulatory perspective.