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New Mexico State University

New Mexico State University

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Net Worth Statement Provides Useful Financial Guide

LAS CRUCES -- A net worth or financial statement makes a useful tool for analyzing family financial progress, said a New Mexico State University consumer education specialist.

"This financial record summarizes the financial situation of an individual or family, listing all assets and liabilities," said Susan Wright with NMSU's Cooperative Extension Service. "Completed once a year, a net worth statement can help monitor progress made toward important financial goals."

Most people will find their total financial worth to be much higher than expected when they do a net worth statement, Wright said. Young couples may find they have a negative net worth when they are in the process of establishing a home and accumulating possessions. "If you have a negative net worth, it is a signal to stop spending or be very careful with spending for a while," Wright said. "You may need to change your family spending and borrowing habits before you are so deeply in debt that you cannot get out. Deficit financing may be possible for the government, but it doesn't work well for individual or families."

To figure net worth, draw a line down the middle of a sheet of paper. List all personal or family assets on one side of the line, and all liabilities and debts on the other, then total each line. The difference between the two totals is net worth Ð or net indebtedness, Wright said.

Assets are items that have substantial value and can be converted into cash. They include checking and savings accounts, the market value of a home or other real estate, cash value of life insurance and retirement or profit-sharing plans, market value of vehicles, stocks and bonds and money owed to you. Some assets, such as houses, gems and antiques, appreciate or gain value every year. Other assets, including cars and furniture, depreciate or lose value.

Liabilities are financial obligations, such as the unpaid part of a home mortgage, mortgages on other property, a balance on a car loan, outstanding charge accounts, credit debt and unpaid bills, Wright said.

Net worth will change periodically depending on appreciation or depreciation of possessions and property. Changes in net worth occur as assets are accumulated from one year to the next or new debts are incurred.

"You might want to compare your non-income producing assets, such as cars or jewelry, to your income-producing assets to determine if you are acquiring items that appreciate or depreciate," Wright said.