As you work on your financial plans for today and the future, you’ll want to know where you stand on the basics too. Knowing the true situation with your assets and liabilities is the first step toward knowing where you stand and where you’re going. 

For this, you have to add up your assets and add up your liabilities. This can be in the form of a statement of affairs.  

Adding Up Your Assets 

Your assets include cash, cash equivalencies, certificates of deposits, checking accounts, savings accounts, money market accounts, physical cash, treasury bills, property, land, or anything that can be turned into cash very easily. Your assets can also include shares, stocks, bonds etc also, which can be listed at the current market price. 

Adding Up Your Liabilities  

Your liabilities include anything you owe to other people, including your mortgage, student loans, credit card debt, auto loans, income tax owed, interest payments, and other personal loans. If you owe it, it’s a liability. If you owe it and it has a contract, it’s a liability. If you have any loans sanctioned but did not draw, then you can ignore it. Similarly, you can ignore unused credit card limits and stick to only outstanding credit card debt. 

You may not include recurring subscriptions which you can cancel by one phone call or one click of the mouse. 

Your net worth is figured by subtracting your liabilities from your assets. Some people who owe a lot on their home may find out that their net worth is negative, which can be disturbing; but don’t worry, you will improve over time.  

The good point about figuring out your assets and liabilities is that you’ll be able to find a few liabilities that you don’t have to keep because there is no contract. For example, if you currently pay for a month-to-month gym membership, you can take that off your liability list, but it’s still a monthly expense so don’t get confused about that. The current liabilities you have should only include the must-pay items and not anything you can cancel during an emergency. 

The purpose of doing this exercise is to ascertain where you are. In case your liabilities are nearly equal to your assets, it is time to get some financial planning. 

In case you find that your liabilities include unnecessary subscriptions/expenses etc, it is time to cancel them.