Your Net Worth A Place Of Hope

After your have your personal cash flow statement in place it is time to look at your net worth. Calculating net worth is comparatively easy but many consumers make it much more difficult. Forget about your income and your living expenses. A water pipe does not care what quantity of water flows through it. All you are interested in now is what you are catching in the reservoir.

Take your net worth forecast sheet and list in the left-hand margin your major assets. Omit minor items such as personal possessions, clothes, and furniture. Stick to such things as the market value of your house, car, stock and bonds, the amount in savings accounts, the cash value of life insurance policies and the actual cash you have on hand at the end of the period.

Use this Online spreadsheet and visit the “Consumer Equity Sheet” tab at the bottom.

Next list your liabilities. These will include the balance you owe on the mortgage, the balance you owe on other debts such as the loan on your car, and bank loans. Use a red pencil for last year’s figures, green pencil for this year’s estimates and blue pencil for actual results.

To get your net worth at the end of each month, simply subtract total liabilities from total assets. The month-to-month increase probably won’t look too large, but let’s face it, that’s all it was. Maybe you can do better, but don’t fall for the temptation to begin a new intense savings program on the spur of the moment.

There are a couple of tricky things about your net worth. Theoretically your house is depreciating, losing value because of increasing age. But maybe over the past years the actual market value has gone up because of inflation. Here is the way to handle this part of your net worth forecast. For all last year’s months simply list what you consider the market value was at the beginning of last year. To get this year’s figure, make a new estimate in the light of the condition of the house and the real-estate market today. Use this figure for all months of this year, and plan to revalue again at the beginning of next year.

Your car is another item somewhat hard to assess. A car loses value much faster than a house. Depreciation plus obsolescence (going out of style) reduces a new car’s value by 30% to 40% the first year, 15% to 20% the second year, 10% to 15% the third year, and around 10%, 9% and 6% in the years succeeding. The person who opts for a new car every year has an average annual depreciation expense about twice that of the person who keeps his car six to eight years. This is a real decrease in net worth, which shows up unmistakably in the trade-in allowance.

Figure how much your car has depreciated from its original cost. If it is two years old, it has depreciated 45% to 60%. So for its present worth put down between 40% and 55%. The exact figure will depend on the condition of the car. At the beginning of next year its value will have dropped another 12-1/2 % on average. So during this year lower the value by one twelfth of this amount each month. Say you figure it is worth $8750 now, but will be worth only $6560 in a year. Each month its value will drop around $180.

The reason you can look at your net worth statement as – A Place of Hope – is that every month you can see as you are paying off debt how your net worth grows.