Financial Planning for September 2002

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A Net Worth Statement May Help You Reach Your Goals
You may have already determined your financial goals, but do you know how to achieve them? Before developing a strategy, you need to compile a net worth statement to take a look at where you are now.

What Is a Net Worth Statement?
A net worth statement gives you an inventory of all of your assets you own as well as all outstanding liabilities. It provides a snapshot of your current financial health and is the foundation on which you can build your comprehensive plan.

Elements of a net worth statement include a breakdown of all of your:

• Cash
• Real estate (including your residence)
• Investment assets
• Other personal property
• Retirement assets
• Debts (credit cards, mortgage, other loans, etc.)
• Business assets

It Can Help Uncover Problems
A net worth statement can uncover financial issues ranging from inadequate portfolio structure to no estate plan -- anything that could prevent you from reaching your financial goals. For example, a listing of all of your investment assets (including those of your spouse) may show that you are not properly diversified. That means you may own too much stock in one company or have overlapping investments. If so, your portfolio may be subject to undue risk, which could put you in danger of not reaching your financial goals. A net worth statement can also help you devise a plan to reduce your debt, freeing more of your assets for investing.

It Can Help You Define Your Goals
A net worth statement not only helps identify your assets and liabilities, but it can also help define and prioritize your goals. How many years will you have until your child enters college? Will you need to contribute less to your retirement plan and more to his or her college savings plan to fund education costs? It can also identify where your assets are invested and help you diversify your holdings. For example, you may be able to save on your tax bill by shifting some investments from stocks to federally tax-free bonds.

What's the Next Step?
Once a net worth statement is completed, additional analyses may be required to determine the specific recommendations necessary to reach your financial goals. Just as you might consult a doctor for a second opinion, your CPA or financial consultant can use a net worth statement to determine if your investment strategy is meeting your financial needs. It's a good idea to have your CPA assist in the preparation of the statement as a record of your financial situation. It's a document that can also be used by your spouse in the event of your death, your attorney in drafting a will/trust, or by a lender in approving a loan.


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