Financial Answer Center

Facing the economic reality of your transition is number one. While this may not be the primary motivating factor in your transition, it is often the area that requires immediate attention and action.

A net worth statement is simply a listing of assets you own and money you owe. You will need to create a net worth statement in order to determine what you have available to fund your career transition.

Most of us have applied for a bank loan or a credit card. What we want to do now is recreate the section of the application that looks at your net worth. It might be a good idea to get the last credit application you completed (if you did it recently), since it may have much of the information we will be discussing.

Calculating your net worth is relatively easy and should not take you more than an hour or two. Here's the calculation, plain and simple:

ASSETS − LIABILITIES = NET WORTH

An asset is something you own, such as a mutual fund, your 401(k)-plan balance, your home or your car. A liability is a loan or something you owe, such as a mortgage or the unpaid balance on your credit card. . When you complete the net "Net Worth" worksheet, you separately total your assets and liabilities. By simply subtracting your liabilities from your assets, you have your net worth.

You then need to analyze your net worth to determine what implications it has for your career transition.

What Assets Do You Have?

Spend a few minutes gathering the following information:

• bank accounts
• IRAs
• 401(k) or 403(b) plans
• money market funds
• other employee retirement plans, qualified and nonqualified
• mutual funds
• Keoghs
• individual stocks
• other self-employed retirement plans
• individual bonds
• real estate values
• life insurance policies (cash value)
• thrift plans
• business interests
• vehicles/personal property
• employee stock option accounts
• any other information on assets you own

What Are Your Assets Worth?

Fair market value is the cash equivalent of the asset's value—what a willing buyer would pay a willing seller. List all your assets at fair market value. You can obtain most of your asset values from your statements. If you need to, you can find the value of your stocks and mutual funds in your local newspaper's business section.

What do you do about assets like real estate, personal property (jewelry, furnishings, etc.) or vehicles? You need to estimate their fair market value. Simply put, fair market value is what a buyer would pay for the asset.

For what price could you sell your home? What could you get for your gold watch? All these are subjective amounts because you are not selling these assets now, so estimate the best you can. If you need assistance, you can seek independent sources like professional appraisers for real estate and jewelry. Local real estate brokers may be able to help you assess the value of your home. You can also go to town hall and find out the cost of comparable homes recently sold in your area. Refer to the N.A.D.A. Official Used Car Guide (www.nada.com), the Kelley Blue Book (www.kbb.com) or Edmunds.com to estimate the value of your car.

Furniture, clothing, old worn-out cars, and other personal property usually are not worth much, so be conservative in your estimates.

How Much Money Do You Owe?

Your liabilities include all your outstanding debt. Spend a few minutes gathering the following information. If you do not have a current statement, you can usually make a quick phone call to get the information you need.

• mortgage loans
• installment loans
• home equity loans
• 401(k) plan loans
• other real estate loans
• margin loans on brokerage accounts
• car loans
• student loans
• credit card obligations
• policy loans on life insurance policies
• charge accounts
• loans from family members
• any other information on loans or debt
• other business debt

Completing this part of the net worth process is usually not as much fun as completing the asset part, but it is just as important.

Current Outstanding Balance

Put the current outstanding balance of each loan on your net worth statement. This is the amount of the loan that remains unpaid, not the amount you originally borrowed.

For example, you borrowed $100,000 to buy your home, and you have been making mortgage payments to date. Your mortgage balance is now $96,000. That's the amount you should put in the liability section of your net worth.

IMPORTANT NOTE: When reviewing your outstanding debt, be on the lookout for any lump-sum payments that may be due in the near future. Refinancing obligations such as balloon mortgages may be difficult if you are unemployed. Do not ignore these debts. Develop a plan of action to deal with them in a timely fashion. If you believe you're going to have a problem, contact your creditors before they contact you.

Prepare Your Personal Net Worth Worksheet

The following are the instructions for the easy-to-use "Net Worth" worksheet. Print out the worksheet (of course, you may use whatever format you like, as long as it is easy to read and understand). Make sure you put the current date at the top of your net worth statement.

Net Worth Statement Instructions

* For deferred compensation plans, include the amount you will be entitled to if you terminate employment.

Use the "Net Worth" worksheet for your own calculation.