Inventorying Your Assets and Liabilities

Creating an organized list of your assets and liabilities is the first step in determining your current financial situtation.

Rest assured, we aren't asking you to do the type of detailed, whole-house inventory that you might do in connection with your homeowner's or renter's insurance policy, or a list of your financial obligations that might satisfy your banker. We're not really interested in the serial number on that electric shredder, or the $50 that you still owe your sister-in-law!

Your financial planning asset inventory will list the major assets that you have, their current value, and what income (if any) they generate. While personal items (such as clothes, electrical appliances and furniture) will be listed -- or at least lumped together and reflected under a "personal effects" entry -- the emphasis is on your investments, that is, assets that you hold with a view to their likely appreciation in value (such as real estate or collectible coins or stamps) and/or generation of income (such as stocks, bonds, CDs, or rental real estate).

Listing your assets. Because you'll use the information from your asset inventory to analyze, and possibly realign, your investment strategies, you'll want the entries for your investments to be fairly detailed. You'll generally want to include an entry recording when each investment was made, its purchase price, its estimated current market value, and the amount of yearly income that it earns (if any). If you are married, you should also note whether each asset is owned by you alone, or jointly with your spouse. If you like, you can also list assets owned solely by your spouse to get a more complete picture of your family's financial situation.

Here is an example of a portion of a simplified asset inventory:

Listing your liabilities. Your list of liabilities should include a brief description of each liability, including:

• to whom you owe the debt;
• when you incurred the debt;
• the interest rate you must pay on the debt;
• the amount of the unpaid balance of the debt;
• the amount of each repayment and the frequency of repayments (such as monthly);
• if the debt is secured, list the security/collateral (such as your house or your car); and,
• the date when you expect to have paid off the debt.

Planning Tools Using a personal financial statement form such as those often required by banks might be helpful in listing your assets and liabilities. Using this Sample Personal Financial Statement may help give you a concise organization of itemized relevant personal financial factors and detailed schedules for your outstanding credit sources and your specific assets, including securities, real estate and life insurance.

As you've no doubt learned from wading through the preceding discussion, net worth is what you own less what you owe. If you owe more than you own, you've got a negative net worth. If you own more than you owe, your net worth is said to be positive.

Financial Calculators In setting your goals, you'll need to know where you are financially before you figure out where you are going. To help you do this, use this Net Worth Calculator to compute your current net worth and to estimate what it might become in the future.

After you have completed the inventory of your assets and liabilities, the next step in constructing your financial plan is to come up with a current personal budget of income and expenses.

© 2024 Wolters Kluwer. All Rights Reserved.