Net Worth Statement - A Reality Check

Some of us like to think that we are rich. Most of us like to pretend that we are rich. Unfortunately only few of us are truly rich.

Under normal circumstances, I would applaud positive thinking. When it comes to “bread and butter” matters however, I prefer to know the truth no matter how scary or painful it is.

Malaysia is a rich country and Malaysians are generally living well. So it is not surprising if most of us think that we are rich. Nobody will die out of hunger in Malaysia. People actually queue up to buy $20 popcorn!

Some will not even think twice about paying $15 for a glass of cold drink. The children are even using sophisticated smart phones and are seen carrying tablets everywhere!

I may sound a bit sarcastic but please do not get me wrong, I am not against consumerism. In fact I think consumerism breeds innovation. I am also a believer of an adage "money not spent is not yours".

So feel free to spend your money in any way you deemed fit. Contribute to the well being of the economy!

The key word however is "your money". Is it really your money that you are spending? With easy credit on offer, the distinction can get a bit hazy sometimes.

This is where your Net Worth statement can give you a bit of reality check.

Net Worth statement is the balance sheet of your finance life.

Recap:
Assets - Liabilities = Net Worth
Assets - Liabilities > 0 = Technically Rich
Assets - Liabilities < 0 = Technically Bankrupt

Since this is just a reality check, you don't have to update it every month. You can if you want to though. In my case, I just monitor my net worth position as at the end of the year, 31 December.

I also have Projected Net Worth statement. For a beginner, this may be quite complicated because it involves estimation of your future assets and liabilities. This is where your Excel skills will come in handy.

If you are a novice, maybe you can start with just monitoring your actual net worth position every six month. Once you are more familiar with it then you can start doing the Projected Net Worth.

Below is a sample of Net Worth statement:

 

Please note that for properties, I will just list them at cost price instead of market price. I would rather err on the prudent side.

It is better to underestimate your net worth. Not too much though, it might de-motivate you.

If you are even stricter than me, you can even take out your retirement fund from your asset list since it is not accessible until you have legally retired.

Homework: If you haven't already, start to prepare your Net Worth statement. This exercise might take some time to complete because you will need statements from the banks regarding the actual value of your investments or loans as at (in my case) 31 Dec.

Do not give up. The truth will set you free.

Good luck!