When a person tries to set his/her financial life in order…there are 3 important documents that they should be able to put together:

  1. Balance Sheet
  2. Income and Expenditure statement
  3. Goal sheet

Let us put it that way – Balance sheet is a summary of what you have and what you owe.

Income and Expenditure statement – this is the statement that shows your total income and total expenditure

Goal sheet – the statement of where you want to go.

Your balance sheet is where you are, I and E a/c tells you how much money you have to fund your journey – the Goal Sheet tells you where you want to go!

Assets (what you own), Liabilities (what you owe), once you calculate these 2 figures, you can make your balance sheet.

Assets Minus Liabilities is Net worth. 

Net Worth maximization should be your ONLY financial aim in life. In fact I would think that a financial planner should be paid a % age of net worth and not as a %age of assets.

What are personal assets:

Cash on hand – well that means purse, jar, mattress, wife’s purse,….everything. All the cash in the house.

Cash in the bank – all bank accounts – current account, savings account, fixed deposits….everything.

Mutual funds – liquid funds, bond funds, hybrid funds, equity all mutual fund accounts

Shares/bonds – physical form, demat form both!

Life insurance – cash values (aka surrender values in case of endowment plans) and Nav minus surrender charges for ULIP, If you do not know how much is the surrender value, call your agent and ask him

Real estate: all the real estate that you own – self occupied house, house given on rent, land, etc.

Metals : all the gold, silver, gold bonds, silver utensils, gold jewelry,

Account balance in Public provident fund (PPF), voluntary provident fund (VPF), Nsc, Kvp, etc..

Personal assets: cars, golf kit, home furnishings, and any other things of personal interest…

Current Liabilities:

Unpaid bills: list bills that have to be paid within the next 2/3 months. Rent, telephone bill, electricity bill, insurance premium, property tax, society charges, credit card bill, etc.

3 months EMI instalments

Longer term liabilities

Home loan

Car loan

Other loans – educational, personal loans, etc.

Net worth is Net assets minus liabilities.

Now, you know your networth…

You also need to understand that your house, your golf kit, your personal belongings, your car, golf cart, motorcycle are assets for sure, BUT THEY do not work for you or for your Retirement.

So another way of classifying assets is “working assets” – which work for you to achieve your goals and “non working assets” – jewelry, house, car, golf kit, clothes, furnishings, – which are also called “show off” assets. If you have non working assets because you wish to enjoy using them (jewelry) it is great, but if you have assets (jewelry) because you want to show off to your friends and relatives, your attaining financial freedom is difficult!!!

For calculating your “working net worth” please exclude all the non working assets – and your home loan too. That is your working net worth which you should try to maximize.

 

 

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  1. Sir, I have been maintaining one such record for last 7 years. I had one doubt: Should we include the house we live in also? I am excluding the same in order to ensure that there is a roof over the head. Of course adding that to overall balance sheet helps, but I am consciously keep the same out. Do you recommend this?

    I will look forward to your post on Goal sheet, but I presume it would include the target, the asset allocation and asset mapping for each of them.

  2. Sir, I have been maintaining such a sheet from some years, recently I am in this dilemma.
    When we talk about Mutual funds should I put the market value or the cost value?
    For house as well should I put the purchase price or the price at which it might get sold presently.
    How often should I revisit this sheet?

  3. Dear Ganesh,
    You are right, you should not include your primary residence because an asset puts money in your pocket and a liability takes money out of your pocket (Rich Dad, Poor Dad) and a self occupied house takes money out of your pocket (maintenance, tax ). Hence it is a liability. On the other hand, a second house generating rent can be considered as asset.

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