Net Worth: What Service Members Need to Know

By Barbara O’Neill, Ph.D., CFP®, boneill@njaes.rutgers.edu

money, calculator, and note pad
Photo by Karolina Grabowska from Pexels

Personal Financial Managers often teach service members information and skills that they can use for a lifetime. One of these skills is preparing a net worth statement (a.k.a., balance sheet). Below are nine key facts about net worth statements:

  • Description and Analogy– A net worth statement shows someone’s financial position at a given point in time. It is like a “financial snapshot” that includes the dollar value of what people own (assets) and owe (debts). In other words, the amount available if assets were sold for current market value and all debts were paid in full.
  • Net Worth Formula– The formula to calculate net worth is: Assets – Liabilities = Net Worth. For example, a service member with assets totaling $48,000 and $8,000 currently owed on credit cards and a car loan has a $40,000 net worth. Net worth can be a positive (assets greater than debts) or negative (debts greater than assets) number.
  • Asset Value- Assets are listed with their current market value (i.e., what they would be worth if they were sold today). If recently purchased, the purchase price of a house can be used. Otherwise, consult a real estate agent to get a market analysis or check recent sales of similar properties.
  • Personal Property– Personal possessions such as vehicles, household goods, and recreational equipment lose financial value (depreciate) from the day of purchase. For “big ticket” items, consult newspaper classifieds or online sales portals to see what they usually sell for. A value of 10% to 20% of the original cost is not uncommon for valuing items such as clothing, furniture, and older model electronics.
  • Financial Assets- For life insurance, list only what someone can borrow from a whole life or similar policy. Term insurance is temporary and has no cash value for asset calculations. Also, include investments held within and outside of tax-deferred retirement accounts. For stock, bond, and mutual fund values, check newspaper financial pages or personal finance websites.
  • Liabilities- For mortgages, list the balance due. Also list balances on credit cards and longer-term debts such as student loans and car loans.
  • Net Worth Analysis- If liabilities exceed the value of assets (i.e., negative net worth), people should take corrective action by implementing a debt reduction plan. A net worth statement also indicates home equity (value of the home minus balance on a mortgage and/or home equity loan) and equity in a car. If assets are worth less than loan balances, they are said to be “upside down.”
  • Net Worth Uses- Some loans (e.g., mortgages) require data that appear on a net worth statement. Having it calculated can speed up the application process. In addition, courts require net worth data for divorce settlements. The best use of net worth calculations, however, is as a benchmark of financial progress over time. Ideally, net worth will rise as assets grow and debt is reduced.
  • Net Worth Calculation Resources– Rutgers Cooperative Extension has a free downloadable “paper and pencil” Net Worth Calculation Worksheet and Microsoft Excel net worth template (spreadsheet).