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TRADING #101 COURSE – PART THREE: SETTING UP YOUR BUSINESS – WWW.TRADERSCOACH.COM
Net Worth Statement
For starters, you will need to develop a current net worth statement, which is an
accounting of all your assets and your liabilities. Look at Table 13.1, which is a sample
that shows you a very basic accounting of a hypothetical household.
Yours of course will vary, and you may add items or delete them to suit your individual
situation. The concept of this statement, though, is the same for everyone. The concept
is to add up all your assets and your liabilities into one easy-to-read statement.
Table 13.1 Sample of a Net Worth Statement
Assets Liabilities
Description Amount Description Amount
Real estate—home $805,000 Mortgage—home $425,000
Automobiles $ 55,000 Automobile loans $ 17,000
Jewelry $ 29,000 Credit cards $ 23,000
Checking accounts $ 13,000 Current bills $ 19,000
Savings accounts $ 48,000 Business loan $ 45,000
Trading accounts $ 45,000 Other $ 8,000
Total assets $995,000 Total liabilities $537,000
Total assets $995,000 – Total liabilities $537,000 = Current net worth of $458,000
The next step in figuring out your net worth is to subtract the liability amount from the
asset amount, and that gives you your current net worth. It looks something like this
equation:
Total Assets – Total Liabilities = Net Worth
And if we use the numbers from our sample net worth statement in Table 13.1, the
numbers look like this:
$995,000 – $537,000 = $458,000 = Current Net Worth
Once you have this information, you will be able to more effectively create your financial
profile, which is the first step in starting your trading business.
How Big/Small Should Your Account Be?
Typically, you will allocate about 10 percent of your net worth for your trading account at
the most. This percentage is not one that needs to be carved in stone, but it is a
general rule of thumb that I like to go by. At times, younger traders with a longer time
horizon until retirement can afford to put more than 10 percent into this account. To do
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