What is your personal net worth?

Singaporeans are busy people. We are busy with work; we are busy with our families; and we are busy with our personal lives. Are we too busy to take a step back from our work, family and personal life to reflect on our own personal net worth?

Why should you be concerned about your personal net worth?
We live in a material world that requires money to fund our lifestyle. So living in Singapore comes with it certain financial requirements depending on how you want to live. If you are frugal, you can make your money stretch a long way. If you are spendthrift, money flows faster than water plunging down a waterfall.

Do you know how long you can last financially if you were retrenched?
Do you know how much your savings can provide for you if you were too sick to work?
Do you know how much you need to have to be able to retire yourself from you job?

In order for you to be able to have some kind of answer to the questions above, calculating your personal net worth would help. (We deliberately do not touch on insurance as that is a whole other issue.)

Why should you be concerned about your personal net worth?
Your personal net worth gives you a snapshot at a point in time how much you are worth taking into consideration your assets and liabilities. A simple personal net worth statement can be as follows:

ASSETS
Cash at Bank
Money Market Instruments
Time deposit
Investment Securities (stocks and shares)
Central Provident Fund
Insurance (Non-Guarantee Cash Value)
Property (owner-occupied) at valuation
Property investment

LIABILITIES
Housing Loan outstanding
Car Loan outstanding
Credit car debt outstanding
Personal unsecured credit outstanding

Total net worth = Assets less Liabilities
[Tip: A POSITIVE net worth is GOOD. A NEGATIVE net worth means you owe others more money than what you possess. In the short-term, while you are starting out a career and home, that is okay, but in the long-term you must move towards a POSITIVE net worth by consistent savings and investing!]


So what do I do with the personal net worth statement?
The whole idea of doing this snapshot is to know if your net worth is growing over time. If you want to be able to retire earlier than mandatory retirement age, you need to grow your net worth to a point where the passive income from this net worth is more than your living expenses.

However, for many of us, our homes while contributing to our net worths, does nothing for us in terms of passive income or cash flows because while you are staying in it, you cannot receive cash flows unless you rent out a room or the entire home. If you rent it out, you still need to find a place to stay. Hence, only your net worth less the value of your home can be invested to generate returns for you.

Knowing your net worth is just one step towards being more financially aware of your own situation. Instead of relying on a financial planner to tell you what you are worth, go compute your own personal net worth statement using the categories above or create your own categories.

When you realise that you daily spending / savings habits have an impact on your net worth, it will help you decide if that dollar you earn goes towards spending or savings or to pay off your debt. All your actions financially affect your personal net worth.

Know your net worth, self-awareness is the beginning of true knowledge.

Be well and prosper.