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Financial Health "Snapshots": Net Worth and Cash Flow

June 2023

Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

Financial health is the overall state of a person's finances (e.g., earning, spending, planning, saving/investing, and borrowing). June is the last month of the first half of the year and a good time to self-assess where you stand financially. Two key financial statements, net worth and cash flow, provide financial health "snapshots" (i.e., summaries at a point in time).

Net worth and cash flow statements shouldn't take more than a few hours to prepare. They can be compiled in one sitting or in a series of small steps. The most time-consuming part is looking up the dollar value of various entries from paper statements or online. Below is a brief description of each "snapshot" financial statement:

Net Worth

Description- Net worth (PDF) is the amount you would have if all of your assets were sold for their current market value and all of your debts were repaid in full. It includes the dollar value of what you own (assets) and what you owe (liabilities or debts).

Calculation- The formula for calculating net worth is Assets – Liabilities = Net Worth. For example, if assets total $550,000, including the value of a home, and $348,000 of debt is outstanding on the combination of a mortgage, credit card balances, loans, and other debt, net worth would be $202,000.

Information- Assets should be listed with their current market value; i.e., the price if they were sold to a willing buyer. If recently purchased, the purchase price of a house can be used. Otherwise, consult a real estate agent to get a market quote. Auto and personal property values can be found using online shopping websites.

Interpretation- If liabilities exceed assets (negative net worth), the underlying cause(s) should be examined. Declines in investment values during market downturns are to be expected but other numbers in a net worth statement, such as emergency savings and total amount of outstanding debt, should ideally show progress (i.e., increased savings and reduced debt).

Cash Flow

Description- A cash flow statement shows how much money an individual or household earned and spent during a specified time period (e.g., typically monthly such as the month of June). Cash flow can be positive (income greater than expenses) or negative (expenses greater than income).

Calculation- The formula for calculating cash flow is Income – Expenses = Cash Flow. Expenses include savings for financial goals and the pro-rated monthly cost of irregular expenses (e.g., insurance premiums). Example: if monthly income is $5,000 and expenses total $4,800, there is $200 of positive cash flow.

Information- Data to complete a cash flow statement can be gleaned from paycheck stubs, bank account and credit card statements, and receipts for purchases and ATM withdrawals. Another recommended method is to use an app or paper tracking tool (PDF) to write down expenses at the time of purchase.

Interpretation- Cash flow statements can be quite an eye-opener when people see how their seemingly "small" expenses add up over time. If cash flow is negative, the underlying cause(s) should be examined. Cash flow can be improved by increasing income, reducing expenses, or both.

For additional financial health self-assessment tools and worksheets, visit the Rutgers Cooperative Extension Personal Finance website.