How to take a snapshot of your financial present
By Elizabeth Summers CFP FMA FCSI
Welcome back to team “Family Finance” and the teamwork approach to achieving financial balance.
In the last set of exercises “How to Paint Your Financial Future”, you brought your team together by focussing on your family dreams or, to use financial planning vernacular, your financial goals.
Now it is time to see where you actually stand by preparing a Net Worth Statement or “financial snapshot”. And be prepared; total honesty is required for this exercise. A financial snapshot will show you where you are right now. It will also provide a starting point so that you can monitor your progress towards your goals.
Let’s get started.
The first section of a financial snapshot should list all your assets. This basically is a list of what you own. Even though that seems quite simple, you do need to decide what to include in the list. Always include your bank account balances. If you own your home, include the value. You can include either the official assessment value or what you feel is the market value. Make a note of which value you choose so that each year you can monitor it in the same way.
Next, list your liquid investments, which is usually anything for which you receive a statement. These might be investment, stock and mutual fund accounts, RRSPs, RESPs TFSAs and Canada Savings Bonds.
Fixed investments would follow. These might be a summer cottage or cabin, or part ownership of family property.
The last items to record on your asset list should be personal property such as vehicles, jewellery, art and other valuables.
Furniture could be included but be wary of this. Way back in 1979, we bought beautiful antique furniture for $1200 thinking that we could always sell it if we were ever really short of money. Fortunately, we have been able to enjoy this furniture for 30 years. However, as homes get smaller so does the value of our furniture. At the auction house today, our furniture would only be worth $400 minus $150 to have it picked up!
The next part of the financial snapshot is slightly more difficult, so brew a nice cup of tea before tackling this. In this part of the exercise, list your liabilities or what you owe.
What is the balance remaining on your mortgage? Include information about your payment, the interest rate, the renewal date and the amortization, which is the number of years until it is paid off.
Do you have a line of credit? List all the details such as outstanding balance, interest rate and your minimum payment amount.
Is there a vehicle loan? List the balance, payment, interest rate and date of final payment.
Then include the balances on your credit cards and store cards. Get out the statements and record the interest rates on your net worth statement.
All of the details you have recorded will help you with the next part of achieving your financial balance - “Connecting the Dots”
Once you have your assets and liabilities listed, deduct the total liabilities from the total assets to see where you stand. The bottom line is your Net Worth.
Next, we get to the personalization of your financial snapshot.
The exercise above is very black and white. This is your chance to add colour. Look at each item and discuss how you feel about the numbers.
Do you feel you have too much in your savings accounts? Or, do you wish you had more of a buffer between what you have available and what you owe? From a financial planning standpoint, it is recommended to have three to six months worth of expenses in available cash or lines of credit.
How much equity do you have in your home? Does this give you some degree of comfort?
Are you disciplined about paying off your credit cards?
Could you reduce the amount of interest you pay?
Don’t forget to make notes on your financial snapshot, so that when you review the document in one year you can remember how you felt about each item.
This Financial Snapshot is the starting point from which you can achieve your goals. With this much honesty, once a year, and discipline throughout the next year, you will find that team “Family Finance” is a formidable force.
This is the second of a three part series on how to look at your finances without arguments. Feedback is always welcome.
Stay tuned for “How to Connect the Dots to Success”
“Money Makes a Good Servant but a Bad Master” attributed to Sir Francis Bacon (1561 – 1626).
Your Financial Snapshot:
Assets Account # Balance
Chequing account balances
Savings account balances
Liabilities (balance, interest rate, payment, amortization)
Line of Credit
Credit card (1)
Credit card (2)
Assets minus liabilities = TOTAL NET WORTH
This article was prepared for Elizabeth Summers, who is a Financial Planner with TD Waterhouse Financial Planning, a division of TD Waterhouse Canada Inc. and a subsidiary of The Toronto-Dominion Bank. TD Waterhouse Canada Inc. – Member of the Canadian Investor Protection Fund.