Finances After 55. Sylvia Lim
this book. It’s a good idea to also revisit these worksheets yearly, re-assess your financial situation, track your financial changes, and make any necessary revisions to your budget and lifestyle.
If you are part of a couple, record both your own and your spouse’s assets and liabilities. Any items in both names are recorded as joint assets or liabilities.
If you’ve never done it before, the following section shows you step by step how to complete your household’s own net worth statement. You can make the process fairly painless for yourself by following these steps:
Step 1: Prepare yourself
1. Find a quiet, well-lighted work space.
2. Print out the Net Worth Worksheet form you’ll find online at www.self-counsel.com/updates/after55/bonus.htm.
3. Have a calculator, a pencil, and an eraser ready for your calculations. (You may choose to complete the Excel version of the Net Worth Worksheet available online or print the PDF version and fill in the form by hand.)
4. Gather together the following, if applicable:
• All your most current bank statements.
• All your most current broker and investment account statements.
• All your most current retirement savings account statements.
• All your most current pension account statements.
• All your most current credit card statements.
• All your most current bank, car, and other loan statements.
• All your most current mortgage statements.
• Your life insurance statements, including cash value balances, if any.
• Your long-term care insurance papers.
• Your critical illness insurance papers.
• Your prepaid funeral arrangement papers.
• An itemized listing of your property and valuables with their fair market value. (Separate the listings by type, such as furniture, antiques, jewelry, furs, coin collections, china, crystals, silverware, etc.)
5. Get an accordion-style folder for storing your statements and other papers.
Step 2: Sort out the paperwork
Take a close look at all the papers you have gathered. Sort them into two piles — an “Asset” pile and a “Liability” pile. If you are part of a couple, make additional asset and liability piles for items in your spouse’s and joint names.
The “Asset” pile will comprise papers that show the value of the things you own (for example, your investment account statements, the cash value of your life insurance statements, and your itemized listings of valuables). The “Liability” pile will comprise papers that show the value of your debts (for example, your credit card statements, your mortgage statement, and bank statements for overdrawn accounts).
Step 3: Date the Net Worth Worksheet
It is important to record the date for which your net worth was calculated, because when you calculate your net worth again at a future date, you’ll be able to make comparisons and measure the progress you’ve made or any setbacks you’ve suffered. (You will use this same date again when you fill out the Income-Producing Investments Worksheet.) Note that the date you put on the worksheet is not the actual date on which you did the work; rather, it is the date on which your net worth is based. It is best to pick a date such as December 31, September 30, June 30, or March 31, as these are dates on which most financial institutions provide information on your bank and investment accounts.
Step 4: Fill in the asset values
Complete the “Asset” items and fill in the applicable values on the worksheet, using all available account statements. You may round the values to the nearest one hundred dollars to simplify your calculations.
For items such as your home or your car, for which there are no statements, estimate their fair market value based on your knowledge of the current market and the economy. Fair market value means what you think you can sell them for today. Use the most recent appraised value or, in the case of your home, check with your local realtor. You can use the newspaper’s classified section to check for the current value of other assets. You must be realistic, but you don’t have to be precise. You will never know the true values of these items until they are actually sold.
In the case of life insurance policies, include only the cash value of these policies. Do not include the benefit amount; that will belong to your beneficiaries, not to you.
Step 5: Fill in the liability values
Fill in the amounts of the “Liability” items on the worksheet. Use the values from all available account statements. You may round the values to the nearest one hundred dollars to simplify your calculations.
These are the debts you owe various creditors, including credit card companies and your banks. Don’t overlook the debt you may owe to the taxman. (That one should be a top priority in your payment plan.)
Step 6: Fill in the other items/insurance policies
This section itemizes the various insurance policies and their values. Although you pay for these policies, they are not considered assets, because their values are not recognized until certain events occur (such as a particular illness or death), or because they benefit someone else (a beneficiary) and not you. These policies have no current value to you. You simply want to note their existence.
Step 7: Total up your assets
Add up the value of all your assets listed on the worksheet.
Step 8: Total up your liabilities
Add up the value of all your liabilities listed on the worksheet.
Step 9: Calculate your net worth
Subtract the liability total from the asset total. You now know your net worth as of the date you chose in Step 3.
Step 10: File your paperwork
Divide the accordion file into two sections. Label the first half of the file “Assets,” and the second half “Liabilities.” File your asset-type statements and papers in the “Assets” section, preferably in the same order as you listed them on the Net Worth Worksheet. Do the same with the liability-type statements and papers.
To see how net worth can act as a financial snapshot, look at Sample 2, the completed Net Worth Worksheet of John and Mary as at September 30, 2004. They’re both in their early 60s and in good health. Note the following:
1. John has assets of $223,000; Mary has $224,000; and assets in joint names of $437,750. This brings the total household assets to $884,750 as of September 30.
2. Their household liabilities total $28,000.
3. The household net worth is $856,750. That’s the difference between total assets and total liabilities.
4. They have bank savings totaling $31,000. The cash in the term deposits and savings is for emergencies. It can be accessed immediately.
5. They have income-producing investments and retirement savings worth $100,750 and $400,000 respectively.
6. They have $30,000 cash value in their life insurance policies. They have named each other and their two grown children as beneficiaries. The cash value will continue to grow over time. They can choose to borrow against it or withdraw the balance at a