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