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In the case of Lisa and Beth, it is critical to create a balance sheet — a snapshot of their wealth at a moment in time. The balance sheet reflects what they own (their assets), what they owe (their liabilities), and their net worth (the difference between assets and liabilities). A positive net worth indicates that they own more than they owe. A negative net worth would indicate that they owe more than they own.

Lisa and Beth’s combined balance sheet shows a modestly positive balance. However, if you take out the value of their cars and motorcycles, which are depreciating assets, they dip into negative territory. This is because of their high consumer debt (including $140,000 combined credit card debt and auto loans). It should be noted that taken individually, Lisa has a negative net worth and Beth is on a more solid financial footing. A way to increase net worth is to increase savings and pay off debt.

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