Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 3, 1993 TAG: 9301030013
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
WHAT YOU'RE WORTH
A New Year rings in the time to take stock of your family's financial situation.Filling out a financial statement, thus determining your family's net worth, is the first step on the way to establishing your money goals and the path to get there.
The financial statement tells you where your family stands now. If you go through the process with every new year, you also can measure progress toward reaching your goals.
Calculating your net worth is easier than it sounds. Many people draw up a financial statement when they apply for a loan or when they enlist a financial planner.
Simply get a pencil and use the adjacent balance sheet chart, which was prepared by the Institute of Certified Financial Planners.
Your assets, which you list on the left side of the chart, represent what you own or are purchasing over time. Examples are cash, savings and checking accounts, real estate, investments, household goods and the cash value of pension plans and insurance policies.
On the right side you should list liabilities. This is what you owe, such as the balance on the home mortgage, other loans, credit card debt, any outstanding bills and other accounts not yet paid in full.
To determine net worth, subtract the total of your liabilities from your total assets.
If the figure is negative because debts exceed assets, you face financial problems. It is a warning that your family must begin immediately to whittle away at those debts.
If the two figures about balance, you haven't made much progress in meeting financial goals.
A high net worth indicates financial well-being. Whether you are actually making progress, however, depends on a comparison with prior statements. If you don't have your history on paper from earlier years, let 1993 serve as your benchmark for the future.
Remember, too, that all liabilities - or money you owe - create equal drag on your financial statement.
Assets, however, differ in quality. A bank, in considering your application for a loan, would not give all of them equal weight.
Cash, stocks, bonds and shares in mutual funds are called liquid assets because they can be tapped quickly in an emergency.
The value of those investments is clear and easy to determine. Mutual funds, stocks and bonds are listed in the newspaper and in monthly statements at the current market worth.
The value of property is harder to specify.
Your house is worth whatever a buyer would be willing to pay for it, but you can't be sure of the price unless you put it up for sale or, at least, pay for an appraisal.
So you should enter the figure that you believe your house would sell for. One guide is the amount your neighbors are getting when they sell similar homes.
To put a value on your cars, consult various books rating used cars. Those books are available in public libraries. Your property tax form is another source for the value of your car, but take into account the condition of the vehicle.
When valuing household belongings, remember that your furniture is valuable to you, but it probably carries little weight as a financial asset. Unless, that is, you own fine jewelry, a recognized work of art or a valued antique. For the rest, count what it would bring at a flea market.
Money that somebody else owes to you is also a problem. A loan that you made to a friend or relative is only as good as the ability - and willingness - of that person to repay you. Do you honestly believe that you will receive that money?
When you list liabilities, don't forget contingent liabilities. That's the money you owe in case another person defaults.
A contingent liability may take the form of a partnership, a credit card that you allow another person to use or a loan you co-signed for another person.
Those liabilities, even though you don't owe the money directly, are as much a drag on your credit as your mortgage is.
If you co-signed a loan, you are responsible for full payment if the first person defaults. If someone uses your credit card with your permission, you must pay off any bills that they run up.
If you are in a partnership, for instance, with five people, you don't owe one-fifth of its debts. Each partner is liable for the full amount if the venture fails and some partners can't pay.
When you have finished the financial statement, you should decide what you want your net worth to be in January 1994. Then you will have to budget to get you to that point over the next 12 months.