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Halfway Through The Year

A quick guide to your 6 month financial check-up

In our home, July marks our ‘check-in’ chats: discussions on any travel plans for the remainder of the year, whether we should upgrade any furniture or get a newer car, and so on. But our biggest and sometimes most ‘heated’ chat is regarding the semi-annual review of our finances and update of our ‘net worth statement’.

Let’s be serious. When two people come together and comingle their lives [which typically includes joining their finances], a difference of opinion on how it should all be managed is always going to cause ‘a little heat’ in the kitchen. In our home it is no different: neither one of us really wants to ‘learn the truth’ of how our finances are doing overall, but we accept the fact that in order to build the reserves we need for our retirement years, it is imperative that we update our net worth statement semi-annually.

A couple of years ago I was chatting to my grandfather, who has just turned 99 this year, about the balancing act between enjoying life and also building your wealth as a couple. He said this to me: ‘In every relationship, there will be the “spender” and the “saver”. The spender lives for the here and now and wants to enjoy life to the fullest. The “saver” is always thinking of the end game and will enjoy a modest lifestyle in order to secure their long-term goals. However, at the end of the day, a “spender” will become a liability to the “saver”, and their union will eventually crumble unless the spender changes.’ I think it is a fantastic piece of marital advice, considering that in 2015 I read an article in The Wall Street Journal stating that 41% of all marriages in the United States end in divorce because of money issues.

So how do you create and maintain a net worth statement so you can compare what you own [your assets] with what you owe [your liabilities]?

Firstly, you do not need a high-tech programme – a simple excel spreadsheet will work just fine. The best way to start is to create two columns: label one “Assets” and the other “Liabilities”.

Under “Assets”, individually list each asset, where it is held and how much it is worth.

For example: Bank Account [Savings] – BNTB – $2,000.00

Make sure to include all your assets: bank accounts, pensions, investments, life insurance cash value, real estate, personal property, etc.

Under “Liabilities”, individually list each debt, where it is held, how much is owing, the interest rate and the amortization schedule.

For example: Mortgage – Clarien Bank – $650,000 – 6.5% – 22 years

Make sure to include anything you owe: credit cards, mortgage, loans, etc.

Once you have listed all your assets and liabilities, total each column on your spreadsheet; this will give you a complete picture of what you own versus what you owe. The next step is the most important. Deduct your liabilities from your assets and this will give you your actual net worth.

Sit down and create a plan with your partner to determine how often you intend to update it. For our family it is twice a year [January and July]; for yours it could be simply once a year, but the golden rule is at a minimum it should be annually, and it needs to be done in the same month every year.

A great benefit to updating your net worth statement is that you will discover three very important facts:

  • 1. Where your assets are held
  • 2. How your assets are allocated
  • 3. How much liability is associated with each asset

When you make it part of your routine to update your net worth statement, you will also be able to compare the historical data against your current financial goals to track your progress.

For example

In 2017, was your goal to pay off your credit card?
  • Upon reviewing your net worth statement, do you still have a balance on your credit card?
In 2017, was your goal to put additional funds into your pension plan?
  • Upon reviewing your net worth, has your pension balance increased by more than just investment return?
In 2017, was your goal to build an emergency fund for 2017?
  • Upon reviewing your net worth statement, do you have a new account with additional money saved?

Remember, you work hard for the money you are making, and you need to work equally hard to make sure your finances are monitored so you can accomplish your long-term financial goals.

 

Carla Seely is the Vice President of Pension and Investments at Freisenbruch-Meyer. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.

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