Home' Trinidad and Tobago Guardian : April 12th 2015 Contents APRIL 12 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL PLANNING | SBG5
Toyota Corolla and the bank lent me 90 per cent and I paid
down 10. I now have ten per cent equity in this car. I feel
wealthier because I bought this car. The reality though is when
I license this car, the car is automatically worth 20 per cent
less. I have borrowed $180,000, but the vehicle is now worth
$160,000, because it has lost 20 per cent of value already.
What I owe the bank is $180,000 plus interest."
"I may feel wealthier, but my net worth may have, in fact,
decreased," concluded Williams.
The consequences of worsening or negative net worth go
well beyond personal feelings of richness or poverty.
"Our value, or net worth would tend to be important to
lending institutions," said Manchoon. "It lets them know this
person is serious and not a financial risk, that this person
doesn t owe $50,000 dollars there and $100,000 here."
"If you were to die, you want to know that you are leaving
something of value to your beneficiary and not debts that
they have to pay off."
Calculating net worth:
Assets and liabilities
"Before we go to actually calculating your net worth, in
financial planning, if you want to improve your net worth,
first of all you have to establish where you are at, which is
why you have to prepare a personal balance sheet," said Man-
Manchoon provided a sample of the document that he uses
in his sessions with clients, which the Sunday BG has reproduced
for our readers use (see next page).
This personal balance sheet lists all of the clients assets and
liabilities at this point in time. Manchoon s sheet separates
these into current and non-current assets and liabilities. The
non current assets and liabilities listing will contain items that
are harder to liquidate and longer term debt. Meanwhile, the
current assets and liabilities listing will contain items that are
easier to liquidate, more variable in value or shorter term debts.
An example of a non-current asset would be property owned,
while a mortgage would be an example of a non-current
liability. Stocks, cash in a bank account are examples of current
assets, while monthly credit card payments would be an
example of a current liability.
"This balance sheet is where you will balance off your assets
versus liabilities. Your net worth will be the balanced amount,"
Put another way, when your total liabilities are subtracted
from your assets, the figure that remains is your net worth.
Improving or increasing net worth
After the above exercise, if your net worth is negative, it
may be time for some serious financial soul searching.
"The real way to impact this balance sheet or this net worth
statement is in the choices we make day-to- day in terms of
what we earn and how we spend it," said Williams.
"Do I buy lunch today, or do I carry lunch today?
Do I lime every Friday night, or do I go out every other
Do I buy a new outfit every week?
Do I go on vacation every time there is a long weekend?"
Manchoon likens the average person to a business and said
people should begin to think of their earnings as profits.
"If you were a business person, hiring out yourself for
service, what you have to see is whether you are making a
profit. If you are being paid $20,000 for the month, you have
to get up in the morning, you have to spend money on your
clothes, you have to travel to work, you have to buy lunch,
you may have a fair amount of entertainment to do. When
you minus what you are paying in PAYE, NIS, health surcharge,
and your expenses for the month as an employee, then you
see if you make anything."
Both advisers say managing this monthly cash flow is critical
to your net worth.
"You need to focus on that. It is only when you start to
control your expenses that your net worth will start to go up,"
Next week, the Sunday BG explores monthly cash flow, budg-
eting and the percentages of your personal income that should
be devoted to building up assets and liquidating liability in
order to improve net worth.
Continued from Page 4
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