Reserve fund planning’s benchmark analysis is as important to grasp as personal or household net worth – assets owned minus debts owed – when it comes to a development’s finances.
Net worth is stated as at a particular year in time, typically a current year. No one would go to a lender and say that their net worth will be x amount of dollars in 30 years, so the bank should loan them money readily at the best rate.
This is important as it relates to reserve fund planning, since the benchmark’s current replacement costs and optimal annual regular contributions amounts are only valid for the current or next fiscal-year, and definitely not at the end of a 30 year projection.
Since net worth measures total assets minus total outside liabilities for a person or company, it is best used to discuss the value of a person or company in terms of their current economic position.
Net worth is a widely used comparable and we suggest that its use as the carrying value of a person or company for projection analysis is akin to what reserve fund planning does with the concept of reserve fund standing.
Properly calculating reserve fund standing calculations is as important as properly calculating net worth.