Ten steps to create a net worth statement

One of the steps of a financial plan is creating a net worth statement, which essentially lists all assets and liabilities.  Most people are worth more than they realize, so here are some steps on how you can create your net worth statement:

Step 1:  Start by using an Excel spreadsheet, or a similar software, so that the numbers can be updated periodically.  On the spreadsheet you can put column titles, such as the valuation date, description, asset/liability type, original value, current market value, etc.

Step 2:  Pick a specific date to value all assets and liabilities.  Dates that typically work well are March 31st, June 30th, September 30th, and December 31st.   By valuing everything on the same day you will get a more accurate net worth.  For some liabilities and assets listed you will receive statements monthly, semi-annually, or annually with the dollar amounts clearly stated.

Step 3:  List all of your major “illiquid” assets with the largest being at the top.  For some people the largest asset will be the present value of their pension plan.  For others this may be the value of their personal residence.  If you own recreational property or rental property, this should be included on your list.  Business owners will potentially have shares of their privately owned company listed at the top.  We recommend business owners have an understanding of what their business is worth.  It is certainly more difficult to put a value on shares of privately held companies.  On this list you should include all cars, recreational vehicles, boats, campers etc.  Researching through various websites on the internet can provide a good resource for determining fair value for many of these latter assets.

Step 4:  Next should be your major “liquid” assets – chequing and savings accounts, cash, GICs and term deposits, and other investments.   We recommend listing the financial assets into two categories, non-registered and registered.  By non-registered investments we are referring to investments that are not held within a registered plan.  Some of the common registered plans are RRSP, RRIF, TFSA, RESP, RDSP, etc.  This should be a fairly easy exercise as you can simply take the month end statements at the valuation date you selected in Step 2.

Step 5:  You may want to consider listing personal items that may be of value. This could include tools, jewellery, and collections (coins, art work).  We would recommend you keep the items on this list to those worth $500 or more.

Step 6:  Add up all of the assets in the above steps to determine your total assets.  This total asset listing, along with any photos/videos you take, can be an excellent way to document your belongings for insurance purposes, especially if stored away from your home in a safety deposit box.

Step 7:  Now it is time to look at your liabilities, the amount you owe.   For the net worth statement to be accurate you should use the date selected in Step 2.  We suggest starting with the major outstanding liabilities such as the balance on your residential mortgage or any other mortgages on rental properties.

Step 8:  The next step is to list all of your other debt, which may include business loans, credit card balances, car loans, student loans, lines of credit amounts, etc.  These types of debt should be relatively easy to determine the value at a specific date as you can simply request a statement.  If you have a private loan to a friend, family member, etc these should also be listed.

Step 9:  Add up all of the liabilities determined in Step 7 and 8 to come up with a total liability amount.  We often like to see the interest rate and terms on this sheet for a few different reasons.  If you have the ability to repay debt we suggest people first focus on paying off non-deductible debt, then focus on paying off the highest interest rate debt.

Step 10:  Subtract the total liabilities from the total assets.  The difference in these two totals equals your net worth.  If you repeat this exercise every year you will have the ability to compare it with your previous year’s net worth.  The net worth statement will help you assess whether or not you are making progress.