Knowing your net worth is important because it helps you understand your financial health at any given point in time, by providing an accurate indication of whether you have more (or less) assets than debt. This is a powerful indicator of how close you are to retiring debt-free - a key goal of retirement planning.
Calculating your net worth is a relatively simple exercise, provided you have all the relevant information readily at hand. This can be an extremely useful tool to gauge your overall financial wealth and whether you are meeting your predefined financial goals.
By simple definition, your net worth is the difference between your assets and liabilities.
Your individual liabilities are normally easily calculated, and the amounts are usually easily recalled, as these amounts typically gets deducted from your bank account monthly and are important considerations when drawing up your monthly budget. These figures therefore always remain ’Top-of-mind’, especially during depressed economic times as we reign in their spending habits and try to reduce our expenses.
Typically, these values include a combination of both long term and short-term debt.
Listing your Assets is slightly more challenging as it is often subject to valuations.
The value of your house for example, is subject to changing supply and demand in the housing market, interest rate cycles and additional upgrades and improvements done to the existing unit.
The market value of your car is subject to depreciation, wear/tear and vagaries of the second-hand market. Jewellery is again a subjective issue with an independent valuation needed to gain an accurate assessment of its value.
Cash is easily calculated as monthly statements are often at hand.
Even more challenging is gaining up to date values or monthly contributions amounts for your various Retirement Products, Equity portfolios, Unit Trust or Tax-free portfolios. Risk Products such as Life and Disability Policies must also be regularly updated for life events such as illness, marriage, birth of a child or divorce.
One often encounters hiccups when trying to get an accurate valuation of equity investments if they are spread across two or three different brokers and even more so if your Unit Trust Portfolios are held with various Linked Investment Services Providers (LISP’s). With more than a thousand Unit Trusts options available, gaining an accurate valuation or performance reports can be cumbersome or in some cases - non-existent.
Not being able to have a 360-degree view of your Assets and liabilities at any one point in time makes it extremely difficult to plan or periodically review your financial goals. No one makes investment decisions in isolation so there should be no reason to evaluate and monitor them in isolation either.
At Sharenet. We can provide you with a holistic 360-degree review and valuation of your financial position which encompasses risk, investment and estate planning. Each of these elements are examined individually in order to determine where you. What your needs are? And, what you want to achieve?
If you have been struggling to get a CONSOLIDATED picture of your wealth and PLAN in order to meet your objectives, complete the below form to get in touch with one of our trusted wealth advisors.
Caelim graduated from the Cape Peninsula University of Technology with a NHD: Information Technology in 2002. Armed with an interest in financial markets, coupled with a strong IT background, Caelim embarked in a career at Sharenet in supporting the company’s infrastructure. His passion for trading and anything investment related saw him giving primary support to our Stockbroking partners. In 2016, he moved to the Sharenet Securities trading desk assisting Sharenet Securities clients with trade execution and platform support.