Net worth statement is a notes of our asset and liability. The excess asset to liabilities means we are in normal condition or health. There is no bankrupt threat. If the gap between the asset or liabilities is so wide means we are very rich man. Some people whose has so much car and house but has so much debt are said not rich. They have so much liability that they should pay. Sometimes it the high liability make the people bankrupt. They forget to see the net worth statement and borrow money from usurer.
If they see the net worth satement, they will not borrow money from the userer. The userer can cripple our money fast due we should pay the debt. A person should see the net worth statement when they want to borrow money. They must sure that they can pay the debt off. A bank, credit union, or other financial institution may ask the net worth statement that you have. They will not lend money to anyone whose have so much debt. They believe so much debt lead to bankruptcy.
The rule of thumb of ratio liability to asset is thirty percent. When the ratio pass the 30%, you will not be able to pay off the debt.
With net worth statement, you can also plan the financial planning. When you make new financial goals or evaluate your financial goals, you have to see the net worth statement. Fit the goals with the statement. You should not determine the goals in the sky. For example, you just have thousands dollars but you want to buy the jaguar. You should not suicide yourself by setup overoptimistic goals.
In my opinion, we should see the net worth at least once in a year. Unlike the budget, the net worth statement is not much change. If you just spend the monthly, or receive paycheck, the net worth statement is stable. On the other hand, The net worth can change when you loss the asset or borrow so much money. For example, your uninsured car loss. Your asset decrease so much. You must check the net worth statement before applying for an auto loan. You must save so much money or decrease the liability first. By seeing the net worth, you will be far from bankruptcy.
You can see the net worth statement once in a month. It will be good to plan the budget of next month. You will adjust the budget with the net worth statement.When your net worth decrease, you should increase the asset.