Q: Why do I need to create a net worth statement?
A: We have received comments from several people wondering why figuring out their net worth is so important. The answer is simple:
A Net Worth Statement (or Financial Statement) is one of the two tools needed in making good financial decisions.
The NWS is a “scorecard” that allows you to determine progress over time by listing all assets you own less any liabilities you have accumulated (what you own – what you owe). The resulting Net Worth is your “score”.
There is a direct relationship between your Net Worth and your cash flow and debt position. If you spend more than you earn, your net worth will go down – that’s because you must borrow money (often on credit cards) to fund spending that exceeds your income. If you save more than you spend (e.g. by adding to your 401(k) and spending only what is available), your net worth will grow.