Tuesday 5 August 2014

Net Worth: Individual or Household "Balance Sheet"

To achieve financial freedom, we need to know how much money we must have at the time of retirement.

But first, we need to have an idea of how much money we have at the moment, so that we can calculate from there how much money we need to save & how much return our investment should bring.

So it's important to figure our our current net worth, which is total assets - total liabilities.

I have started to record my monthly net worth and cash flow since 2009. The net worth chart is very useful to me as it shows the up & down of my financial position which gives me a clue on how to improve it.

I regret that I didn't do this since the first day I started to work. However, it's never too late to start.

Previously I only recorded liquid assets and liabilities, but recently I have added in illiquid component as well.

Below are the examples of components of net worth.

Liquid Assets
Fixed Assets
Bank Savings
Unit Trust
EPF Savings
PRS/Savings Plan
Other ST Investment

Insurance SV

Current Liabilities
Non Current Liabilities
Credit Card Debts
Property Loan
Personal Loan
Vehicle Loan
Other ST Debts

ST = Short Term
SV = Surrender Value
PRS = Private Retirement Scheme

The popularity of internet banking has made the retrieval of banking information easy. At any point of time, we can check our bank savings balance, unit trust/shares value, EPF, credit card debts, personal / property / hire purchase loan outstanding etc online.

For property value, we can check from property agents/lawyers regarding recent transaction price, or get a rough estimates from new launches of similar type of property in the proximity, or check the asking price of properties from internet.

Vehicle value is easier to get from online marketplace or from the most recent vehicle insurance card.

I will check these numbers on the last day of each month but I don't include insurance surrender value in my net worth.

By subtracting total liabilities from total assets, we can get our net worth. If the net worth is negative persistently, then it indicates poor financial health.

Only when we know our net worth then we can realize how much we need to do to achieve financial freedom - should we save more or put more money in higher-risk investment vehicles?

We can allocate our assets to lower or higher risk investment accordingly to have a sensible chance to achieve our financial goals.

I will continue to compile my liquid net worth monthly like usual, and only include the illiquid part quarterly (every 3 months).

The line chart above shows my liquid net worth (liquid assets - current liabilities) for the past 5 years since July 2009.

We always say that in order to achieve financial freedom, we need to put our money in investment that generates x% of return annually for n years.

So basically we expect our net worth to increase with time towards our financial target.

However, in real life, this might not be the case as sometimes we might spend more than we earn and see our net worth falling even though our investment return is on target.

For my case, my liquid net worth was trending down from 2009 to 2011. Basically it was due to high expenditure and so-so stock market investment result.

The expenditure is mainly due to property & car purchase. Anyway, I treat property purchase as "capex".

In the end of year 2012, my net worth fell quite substantially because of house renovation. If not because of this, I will have more cash to put into stock market...

From mid 2013, I started to change the style of stock market investment and the outcome so far is good. Furthermore, my "capex" in 2009-2011 has started to yield some result since 2014.

Anyway, my current net worth level is still very far away from my retirement figures.

I think everyone should record their household cash flow & net worth every month, as it can make us more disciplined in our financial planning.


  1. Hi Bursa Dummy,

    Could you please send me a copy of the spread sheet. It is very useful for my financial planning & retirement plan. Thanks. My email is fonseka_82@hotmail.com

    1. Hi Fonseka, my spread sheet is very simple as I'm not expert in it. I believe that u should do it your own way :)