Finding your Starting Line

Net Worth Statements and Ending the endless failure of new years resolutions!

New Year’s Resolutions…..great in theory, hard in practice. Just check gyms across the country the week after January 1st, and then about 3 weeks later. Emptied out a bit, huh? As well intentioned as resolutions can be, intentions alone aren’t always enough. 

As psychologist and behavioral finance expert, Dr. Daniel Crosby says, “But if knowledge were sufficient to induce appropriate behavior, America would not now be the most obese developed country in the world and staring down the barrel of a looming retirement crisis.”  

A problem with many of our money goals is that they lack proper context. For example, “I will save more in my 401K this year.” Great idea! But how much more will you save this year? How do you come up with that number? What about your other expenses or your age or retirement goals? Perhaps most important, how will you measure success in meeting that goal? 

The Statement of Net Worth

What is it & what does it show? 

A statement of net worth is a  listing that shows all of a person’s Assets and Liabilities at their current balance, as of a certain point in time. The difference between one’s assets and liabilities is your wealth at that period of time.   

Assets – Liabilities = Net Worth (Wealth)

This formula is critical to keep in mind throughout life. Too often we are caught up in flashy assets that speed down the street, or are posted to our Instagram, but what we don’t see is the liabilities incurred to obtain them. It is foolish to observe a $100,000 car or $1,500,000 home and assume that the owner of those assets is “wealthy.” That might be the case, but all it really tells us is just one side of the wealth equation. No one is posting their monthly mortgage, car loan, or credit card statement on Instagram, are they? No one is posting the years of small sacrifices and disciplined investing to build true wealth on social media, and since wealth is a function of what is owned minus what is owed, rarely do we see the full picture. 

Why is it important? 

The roller coaster of life can distract us from seeing the primary aim of long-term fiscal responsibility. In the investment world, analysts will turn to a company’s balance sheet to gauge the health and long-term sustainability of a potential investment. Ever wonder what is on a corporate balance sheet? It shows Assets, Liabilities, and Shareholder’s Equity for a business at a point in time. A Balance Sheet and Statement of Net Worth are the exact same thing! Just like you wouldn’t invest in a company with a poor balance sheet for fear that there would be no net worth leftover after subtracting liabilities from assets, the same concept applies to our personal finances. 

What to do next? 

Create your current statement of net worth. Just do it! Create a spreadsheet, use a pen and paper, or utilize one of the many free online financial planning tools that will track this for you. E-mail for a standard Excel template to get started with.

Step 1: 

Start with your assets and list them in order of liquidity by account: 

  • Checking & Savings Accounts  
  • CDs, I Bonds 
  • Brokerage Accounts or other investment accounts
  • Retirement Accounts 
  • Real Estate 
  • Owned Cars (not leased) 
  • Other personal assets (jewelry, painting). 

Go find the current balance, or reasonable value, of each asset and put down the dollar amount next to each one and then add them up. These are your total assets.

Step 2: 

List all of your liabilities and list them in order to overall due date by account: 

  • Credit Card Balance (don’t include if you pay your entire balance in full every month) 
  • Other personal loans 
  • Auto Loans (not leases) 
  • Student Loans 
  • Mortgages & Other house related debt 
  • Any other debt 

Go find the current balance owed on each liability and put the dollar amount next to each one and then add them up. These are your total liabilities. 

Step 3: 

Subtract Total Liabilities from Total Assets – and you have your current net worth! 

Now that you have a starting point for your current financial position, any new money goals you set will be easier to measure. Say you decide that 2022 is the year you fully fund your high yield savings account with an emergency fund and contribute $2,400 to an IRA (a mere $200/month). Your current Statement of Net Worth will show no high yield savings at all and at least $2,400 less in your IRA. By the time you get to updating your statement of net worth next year, you will hopefully see both a higher net worth and those two goals clearly highlighted in the asset section. The same applies for liabilities. That nagging credit card balance that keeps growing with interest despite your “minimum monthly payment”? Make a goal to pay it off in 2022! You will see your net worth directly increase as the liability is reduced.I promise that you will feel much better, not to mention having more room in your cash flow to grow the asset side of your net worth now that the crippling debt is gone! 

I don’t typically recommend constantly checking and updating your net worth. Small deliberate steps that are repeatable is what is going to lead to results, but it takes time. Stress less about money by using a statement of net worth to check in with yourself once or twice a year, and I guarantee that if you stick with whatever financial goals you set early this year, watching your net worth grow might just be the momentum you need to take your wealth to the next level! 

The decision to start saving and investing is yours, but the how” can be hard. We suggest speaking with a fee only” financial planner operating as a fiduciary – having a CPA or tax background is a huge plus. Email to schedule a free financial planning consultation with our team.


Elliot Pepper, CPA, CFP®, MST is Co-Founder of Northbrook Financial, a Financial Planning, Tax, and Investment Management Firm. He has developed and continues to teach a popular Financial Literacy course for high school students.

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