Posted 5/4/22

FINANCIAL BY ADAM SMIT Financial Report Card Most readers of this article will be beyond school-age, essentially beyond the point of having a report card issued. Regardless of age or circumstance, I …

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Financial Report Card

Most readers of this article will be beyond school-age, essentially beyond the point of having a report card issued. Regardless of age or circumstance, I advocate one to create a periodic financial report card, also known as a Net Worth statement. The following article will explore the definition of a Net Worth statement, how to create this report card, and why this report card is important.

A net worth statement is a statement that records one’s cur- rent financial position at a specific period in time and is use – ful to gauge financial health. The calculation for net worth is straight forward: assets (things of value) less liabilities (debts owed) equals net worth. By directing more dollars towards appreciating assets, net worth is enhanced over time; however, by allocating more dollars towards depreciating assets, net worth is eroded. One’s credit score is only one aspect of financial health – one's ability to handle debt. A net worth statement is much more comprehensive as it is a snapshot of overall financial health. To create a net worth statement, there are three steps. First, identify and record those items that have value (assets). This may include savings or checking accounts, investment and retirement accounts, real estate, business ownership, and personal possessions. Most of these values will be reported on a regular basis, such as on investment accounts and bank deposits. Other items of value will need to be estimated such as real estate and personal property. In estimating the value of real estate and personal possession, there are various online resources that will show the value of similarly transacted assets (e.g. Zillow or Kelly Blue Book). Assets should be grouped and values subtotaled by classification of asset. For example, liquid assets (checking accounts, savings, money market, etc) should be grouped together, separately real estate assets, and even deprecating assets can be grouped and subtotaled together. Depreciating “assets” are those items and have a tendency to decline in value over time (i.e. most anything that needs an oil change).

The next step in creating a net worth statement is to list and total amount of debts owed (liabilities). Those may include mortgage, personal loans, student loans, or credit card debts. The last step is to add up the value of all assets and all liabilities and subtract the liabilities from the assets. This final figure is your "net worth". It is possible to have a negative net worth (debts exceed assets). A “Millionaire” is one whose assets exceed their liabilities by at least $1 million dollars of value. This financial report card should be completed at least on an annual basis and saved for future reference of progress from year to year.

A net worth statement is a reference point which one can used to identify progress towards achieving financial goals. This report card can be used to identify areas that are constructive and items that are destructive to wealth creation. Wealth creation and preservation allows for less stress but greater freedom to take care of and enjoy yourself, loved ones, and give to those purposes that are important to you. Author Robert Kiyosaki wrote in his best-selling book “Rich Dad Poor Dad”, “If you want to be rich, simply spend your life buying or building assets. If you want to be poor or middle class, spend your life buying liabilities”.

While a budget directs and controls financial decisions, it is the net worth statement that shows the results of those decision. A properly and consistently prepared net worth state- ment is an invaluable tool to see where you stand financially. Adam Smit is CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial. Adam Smit Investment management LLC and LPL Financial do not provide tax or legal advice. Securities ouered through LPL Financial. Member FINRA/SIPC.