As we come to the end of another year it is a good time to
take stock of what we have achieved during the year. This
should embrace all aspects, including advances in knowledge
and education, personal achievements, fitness and lifestyle
(did you keep those New Year resolutions?!) and of course
your financial position, which is the aspect this column will
focus on.
Has your total net worth changed?
Let’s start off by making an inventory of your all your
assets today and compare it (if you have the figures) with
where you stood at the beginning of the year. Here are the
assets to be measured:
Liquid assets: These include all bank accounts, deposits,
building society or similar accounts, travellers cheques and
any cash under the mattress, if that is where you keep it!
Investment portfolios: These include all your holdings of
portfolio bonds, insurance bonds, mutual funds (also known
as managed funds, unit trusts, SICAVS ), investment trusts,
stocks and other securities. Bonds (fixed interest instruments,
not to be confused with insurance or portfolio bonds) and
hedge funds have not had a good year but if you were invested
in stocks and commercial property funds these would have more
than compensated. If you held funds that invested in energy,
precious metals or emerging markets these would have significantly
boosted your returns. A portfolio structured for growth should
have returned between 9% and 12% (in USD, GBP, EURO or AUD)
over the past 12 months. If you have a conservative portfolio
with a high percentage of bonds you would probably be looking
at a growth of 5% to 8% for the year. Totting up the value
may be onerous if you have a lot of different investments
but it should be a simple matter if you have access to a consolidated
online valuation service (Contact the writer if you don’t
have such access!). Remember to offset any early surrender
penalties that may apply as we must look at the cash-in value
today if we are to measure our worth realistically.
Savings and retirement plans: As these tend to be more heavily
weighted in stock market funds, particularly (and correctly)
in the early years, they should have done quite well this
year, especially with the added benefit of cost averaging
where you would have picked up extra units during the price
dip in the second quarter. The value for the purpose of this
exercise is the early surrender value, which may be substantially
less than the nominal investment value. A plan may even have
no value in the first two years in which case you would have
to count your early contributions as lost for this year’s
exercise. These plans form an essential part of everyone’s
financial planning but so that the benefits and bonuses can
accumulate they have to be treated as long term investments.
Real Estate: Judgements here tend to be a little subjective.
When valuing your property, remember it is worth what a willing
and able buyer would pay for it today, nothing more, nothing
less. In many countries property values have been falling
this year although there are pockets such as Perth, Western
Australia, where prices are still rising. The tourist and
rental markets are way down in Bali but that does not seem
to have affected the demand for land and property. If you
own a business this must also be valued in terms of what a
willing and able buyer would pay for it today.
Other assets: Make an inventory of all your other assets and
their current value. This is something you may have already
done for insurance purposes. The list may include cars, furniture,
collectibles such as works of art and anything of tangible
value. Remember that the value of consumer goods depreciates
rapidly. If you buy a car costing Rp200 million it is not
worth Rp200 million! The moment you drive it out of the showroom
it falls in value by at least 10%. This is because you have
paid for not just the car, but all the sales and marketing
costs that go with it. This applies to everything you buy,
including property and financial investments.
Receivables: Money owed to you is not money in the bank! You
should record it but cannot count on it until it is received.
Liabilities: Apart from assets it is important to add up any
liabilities. This would include outstanding loans, mortgages
and credit card debt as well as any bills you are expecting
but haven’t paid yet. You total net worth will then
be your assets minus liabilities.
Time to make the comparison
The next part of the exercise is to compare where you stood
at the beginning of the year. If you did not keep records
you can only make your best estimates. At least you will have
the data to make a more accurate comparison this time next
year. So how did you make out? Was the year a profitable one?
Can you make a favourable report to the ‘shareholders’
(yourself and your family)? Can you afford to declare a dividend
this year, perhaps in the form of Christmas or end of year
presents?
The important thing is that you now have information on which
you can base a personal business plan, something we will look
at next time. This is no different from the way a company
will collate all its management information in order to plan
for the next financial year. However you fared this year,
have as good a holiday season as you can afford and here’s
wishing you the best of happiness and success in 2007!
Colin Bloodworth is a senior financial adviser with Financial
Partners International. The views expressed are his own. If
you have any questions related to personal finance you may
contact him at 021 520 8099 or
colin.bloodworth@financial-partners.biz
