What is a net worth statement?

A net worth statement is a financial snapshot that calculates an individual's total assets and subtracts their total liabilities to determine their overall financial health. By listing all assets, such as cash, investments, real estate, and personal property, and then subtracting all liabilities like debts and loans, individuals can see their net worth. This figure provides insight into one’s financial standing and can serve as a useful measure for tracking progress over time.

The net worth statement is crucial for financial planning, as it helps individuals make informed decisions regarding savings, investments, and managing debt. It’s different from an annual income record, which solely focuses on income earned during a specific period, a summary of monthly expenses, which details spending habits, or a report on stock performance that evaluates financial assets but doesn’t account for overall financial worth. Thus, the net worth statement primarily emphasizes the balance between what one owns versus what one owes, making it an essential tool in financial literacy.