Finding your net worth is well worth the effort
Just as you wouldn't expect your doctor to prescribe a treatment plan without knowing your medical history, you shouldn't construct an investment plan without knowing your net worth. You can figure out your net worth by simply taking an inventory of your current assets and liabilities. As you compile information, think of it as your personal balance sheet that can help you and your financial consultant better understand your complete financial situation and develop a solid investment plan to help meet your financial goals.
To get started, take a look at all of your assets including items such as cash in any bank or money market accounts, stock or bond holdings, life insurance, retirement accounts, and any real estate or personal property you own (including your residence). Next, make a list of your current liabilities including mortgages, bank loans, car loans, credit cards and any other expenses you may have, such as alimony.
By taking a look at your assets and liabilities together, you may be able to develop strategies to reduce your debts and potentially free up more assets for investment. You may also want to consider having a professional prepare a net worth statement as a record of your financial situation. These documents can be used later by your spouse in the event of your death, by an attorney in drafting a will or trust, or by a lender in approving a loan.
Taking a look at your net worth statement can also help you uncover financial issues that may need attention, including an inadequate portfolio structure or a lack of an estate plan. Scrutinizing your investment portfolio and all your investment assets (including those of your spouse) may lead you to conclude your portfolio is not properly diversified and, as a result, may be subject to more risk than you originally intended or are comfortable with. Similarly, you could also discover some of your investments overlap, which can drag down the performance of your portfolio.
In addition to identifying potential problems, a net worth statement can also help you to define and prioritize your financial goals and help you answer such questions as:
Will you need to contribute less to your retirement plan and more to your child's college savings plan to fund his or her education?
Are you saving enough now to retire when you want to?
Are you comfortable with the amount of risk your portfolio is exposed to?
Is your estate plan designed to give the most advantage to your beneficiaries?
Once a net worth statement is completed, additional analysis by your financial consultant or another professional may be required to determine the specific recommendations necessary to reach your financial goals.
Taking the time now to construct a net worth statement in order to build a healthy financial plan is worth it. Talk to your financial consultant about ways you can help ensure you will reach your financial goals.
Editor's note: Jay Torgerson is a financial consultant and accredited asset management specialist with AG Edwards & Sons in Salem. Questions and comments can be directed to him by telephone at (800) 553-1023 or by email at email@example.com.