Net Worth Statement - Part III
This is the third installment on the net worth statement.
I received a comment regarding yesterday's post. The question was about what is considered an asset. An asset is anything you own. For personal financial planning purposes, I like to use three categories for dividing up assets:
Financial Assets - These are usually liquid assets (things that can be sold quickly and used for purchases). Assets that typically fit into this category are:
- Checking Accounts
- Money Market Accounts
- Certificates of Deposit (CDs)
- Payments Receivable
Personal Assets - Assets that are personal to you, which can include:
- Home (much debate about this one because a lot of people consider a home an investment)
- Mutual Funds
- Retirement Plans (401(k), IRAs, Annuities, Pension,...)
- Life Insurance Cash Values
- Business Interests
- Real Estate
It is also important to note that some assets depreciate (also known as "use" assets). This means that the asset becomes less and less valuable as time passes. Assets that are included in this catergory are:
- Household Appliances
- Children's Toys
- and any other asset that gets "used up."
One important thing to remember when valuing your assets is to make sure you use realistic values on your assets. This exercise won't do you any good if you are too optimistic in your valuations. The goal of this exercise is to find out what you are financially worth.
That's it for now. My next post will address liabilities.