What your net worth statement is telling you

By Amy Arnott of Morningstar A summary of all your assets and liabilities is a crucial first step toward getting a better handle on your finances Before you start putting together a net worth spreadsheet gather as much information as you can to get the best sense of what it can tell you Overall net worth assets minus liabilities The ultimate insight from a net worth message is exactly what it says the net worth number which is totally assets minus liabilities The number in isolation doesn t tell you too much but it is a useful benchmark to track over time A negative net worth figure would obviously indicate room for improvement Related Articles Google will pay Texas B to settle states the company collected users input without permission Ticker First at-home test kit for cervical cancer approved by the FDA Panasonic cuts of its global workforce as profits falter states sue over Trump s move to fast-track oil and gas projects via his capacity urgency order More warning signs emerge for US journey industry as summer nears Federal Reserve official sees signs of slowing business sector but not ready to cut rates Debt ratio To calculate your debt ratio you ll need to add up all required monthly debt payments including mortgage payments participant loans auto loans and credit card debt Then take the total and divide it by your monthly gross pretax income Lower is better for this number and any number greater than will likely create problems in obtaining or refinancing a mortgage Urgency fund The greater part financial advisors recommend keeping at least three to six months worth of monthly living expenses in cash or other low-risk highly liquid assets to cover a sudden job loss or other unforeseen events such as car repairs appliance replacement or other home repairs Particular investors may want to keep closer to months worth of expenses in cash if variable pay makes up a notable portion of their total compensation Division of assets between partners This question normally comes up in the context of divorce but it can be worth considering for couples who plan to remain married as well Depending on your state s estate-tax limits and expected future changes to federal estate-tax laws it can be beneficial for couples to try to balance out the assets owned by each individual It s also fundamental for each member of a couple to have their own retirement assets Allocation of assets among taxable tax-deferred and real estate holdings There s no particular reason why the allocations need to be exactly one third each but the principle of equitable distribution helps avoid assets that are out of balance in any particular area In particular it s wise to avoid an overly large concentration in residential real estate because it s not particularly liquid Investors should generally direct majority of of their savings toward tax-deferred retirement accounts but once those have accumulated a healthy balance it can make sense to steer selected savings toward taxable accounts Single-company jeopardy If any one stock accounts for a large share of your net worth that might be cause for concern That s particularly true in the circumstance of employer stock because it means that your human capital your ability to generate income and earn a living and financial capital both depend on the fortunes of one company Liquidity and valuation issues For bulk assets valuation is straightforward But things get a bit trickier for collectibles that aren t liquid such as antiques and baseball cards For any physical assets make sure all of these assets are both securely stored and itemized on their homeowners insurance agenda Number of accounts Life is complicated enough without having a bunch of financial accounts scattered across different institutions It s easy to accumulate multiple accounts if you changed jobs and never moved assets from a previous employer s plan or set up different IRAs at different times But the hassle of keeping track of account numbers passwords and updated account balances may not be worth it That s particularly true for investors approaching age when required minimum distributions kick in Investors don t have to take RMDs from each account but will need to base their withdrawals on the account totals in every covered account Having a limited number of accounts to deal with also makes things easier for family members if you die or become incapacitated This article was provided to The Associated Press by Morningstar For more personal finance content go to https www morningstar com personal-finance Amy Arnott is a portfolio strategist at Morningstar