A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Saturday, April 02, 2005

Net Worth Statement - Part IV

My last post finished up the assets side of the net worth statement. Now it is time to look at liabilities.
A liability is something you owe, either now or later. A liability takes away from your net worth.

Liabilities are usually classified as either short-term or long-term. Examples of short-term liabilities are:
  • Credit card debt
  • Utilities
  • and any other debt that must be paid off in less than a year

Long-term debt is debt that is usually paid off in more than a year. These include items such as:

  • Auto loans
  • Student loans
  • Home mortgage
  • and any other large purchase

For the most part, the less debt you have, the better. However, there are times when debt is necessary. I don't know a whole lot of people who can pay cash for a home!

Next time I'll put this all together in a model net worth statement so that you can see how it all works together. Until next time, feel free to familiarize yourself with the other related posts:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III