If you’re interested in building wealth, regularly measuring your net worth is one way to gauge how well you’re doing financially. According to the Federal Reserve, the average American household had a net worth of $92,805 in the fourth quarter of 2016.  That’s not too shabby but if you’re focused on saving $1 million or more for retirement, you may have your work cut out for you. Putting together a personal net worth statement can give you some insight into how to better shape your investment and savings decisions.
What’s a net worth statement?
Simply put, a net worth statement is a snapshot of your financial situation at a specific point in time. Your net worth statement includes a rundown of all of your assets and liabilities. The difference between the two is your net worth. An easier way to think of it is this: to calculate your net worth, you simply subtract all the money you owe to other people from all the money (or items of value) that you own.
For example, on the asset side, you may have things like:
- Your home
- Investment properties you own
- Stocks, bonds or other securities held in a taxable account
- Retirement accounts
- College savings accounts
- Cash savings
- Cash value life insurance policies
- Certificates of deposit (CDs)
- Money market accounts (MMAs)
- Cars, motorcycles, boats, RVs or other vehicles
- Ownership interest in a business
- Jewelry, artwork or collectibles
In the liabilities column is where you’d list things like:
- Your mortgage, including home equity loans and lines of credit
- Mortgages owed on investment properties
- Credit card debt
- Student loans
- 401(k) loans
- Vehicle loans
- Personal loans
- Medical bills
- Unpaid taxes
One thing to keep in mind is that your personal net worth won’t necessarily be a positive number. If, for example, you’ve got $100,000 assets and $125,000 in debt, your net worth would end up being -$25,000.
Why knowing your net worth matters
There are a variety of reasons why it’s helpful to understand your net worth. If you’re planning to apply for a home loan, for example, the lender’s going to take a close look at your finances. Specifically, they’ll be interested in the amount of assets you have and how much of your income is going to debt each month.
The lender wants assurance that you’ve got money in the bank to cover your down payment and keep up with your mortgage payments. They also want to see that your paychecks aren’t being eaten up by debt. Having a recent net worth statement in hand before you attempt to qualify for a mortgage can give you an idea of how favorably the lender may view your application.
A net worth statement can also be useful if you’re hoping to branch out your investments beyond stocks. Certain investments require you to have accredited investor status before you can take part. The U.S. Securities and Exchange Commission identifies an accredited investor as someone who has earned income in excess of $200,000 annually for two consecutive years or a net worth of at least $1 million.  If you’re considering alternative investments, your net worth statement can tell you whether you meet the SEC’s net worth accredited investor requirements.
Using your net worth statement to improve your financial standing
In addition to those scenarios, a net worth statement can be a helpful resource for shaping your overall financial strategy. For example, let’s say you have nothing saved for retirement and you’re ready to start investing but there’s student loan debt in the picture. On average, the Class of 2016 left school with $37,172 in student debt, which is far from being chump change. 
If you’ve got a lot of zeroes in the asset column and that big student loan debt hanging out in the liability column, that’s obviously something you’d need to work on improving. If a big chunk of your income is going towards debt repayment, however, finding the money to save could be difficult. Saving enough in your employer’s retirement plan to get the company match is a good starting point but what if that’s not an option?
In that scenario, you could still work on building your retirement savings using another path. An Individual Retirement Account offers a tax-advantaged way to save and you don’t need a ton of money to get started. With Motif, for example, you can open a no-fee traditional or Roth IRA and contribute as little or as much as you’d like, up to the annual contribution limit set by the Internal Revenue Service (IRS). Even if you only contribute $50 a month, that can help your net worth if your student loan balance goes down correspondingly.
Check your progress regularly
Drafting a personal net worth statement isn’t a once-and-done move. Your net worth can change from month to month and year to year as you work on paying down debt and increasing your savings and investments. Tracking your net worth quarterly can give you an idea of whether you’re getting ahead financially or if you need to make some tweaks to your short- and long-term financial plans.
Board of Governors of the Federal Reserve System. “Financial Accounts of the United States,” FederalReserve.gov, March 9, 2017.
U.S. Securities and Exchange Commission. “Investor Bulletin: Accredited Investors,” SEC.gov, September 2013.
Student Loan Hero. “A Look at the Shocking Student Loan Debt Statistics for 2017,” StudentLoanHero.com, March 10, 2017.