Once a year, you should prepare a net worth statement by simply adding up what you own and subtract from this what you owe. The remainder is what you are worth, at least in financial terms.
Here are five reasons why you should complete a net worth statement:
1. Smarter Money Management
You can make better use of your income and maintain better control of your expenditures if you have a clear idea of what you own and what you owe. A net worth statement will show how much liquidity you have and identify the best sources for cash, should you need it.
2. Save More Money
Knowing precisely how much is left over after deducting current liabilities provides a strong incentive to save. As you see your net worth increase, you will be encouraged to help it grow. It helps you make appropriate decisions about your investments and lets you judge how much to set aside for buying a home, paying your children’s education, establishing a new career or business of your own or providing for retirement.
3. It Makes Estate Planning Easier
Everyone needs to make a will, and almost everyone needs to know how much he or she is worth before deciding how the estate is to be divided up.
4. Smarter Insurance Planning
You’ll be better able to protect assets. Determining the worth of your valuables is not only necessary to figure out your net worth, it also helps you get the proper insurance coverage.
5. It will help Determine Your Credit Limit when Borrowing
If you need to borrow cash or arrange a mortgage loan, you will be required to provide the lender with an accurate and up-to-date account of your existing assets and liabilities. Your net worth will determine the credit limit that the lender is prepared to offer.