If you want to increase your wealth it is always a good idea to know what your current status is.
If you’re buying shares in a company hopefully the first thing you look at is the balance sheet. The balance sheet is the financial thermometer that tells you the health of the company. At the heart of my personal finances is my very own personal balance sheet. Its a rough and ready calculation that I can quickly update each month (it only takes about 5 mins to do this) that tells me a hole heap of facts and figures about my personal finances.
This simple 1 page spreadsheet tells me the current yield on each of my buy to let properties, current mortgage rates, the current expected yield of my share portfolio, the LTV of each of my properties, current cash savings level, savings rates and the current expected monthly income from my investment portfolio.
Most importantly it tells me how much I’d have in my back pocket if I liquidated everything, jacked the job in and moved to somewhere cheap and hot. My net worth.
Here’s the main components I update each month:
1. Assets
- A list all bank account balances (savings, ISAs etc)
- Current value of stock/fund portfolio
- Value of Significant Other Assets (Premium bonds, Work Share Scheme Holding etc)
- Value of properties (very conservative estimates only please!)
- Sum of the Above = Total Assets
Next to each asset I input the interest rate or expected yield. From this i calculate a what I expect that asset to generate in terms of income each month. Finally I have a comments field for each item where I detail when any bonus rates or lock in periods expire.
2. Liabilities
I hate and have so far managed to avoid any personal debt such as loans, credit cards, car finance etc (excluding mortgages). However if i had any they’d be listed here. Instead my only liabilities are the four mortgages I have.
Again like I did for the assets next to each debt I list the current interest rate, monthly cost and lock in periods. For all the properties I also have a couple of formula work out the current LTV
3. Net Assets
The sum of all of the above shows you what you net assets are worth, or in other words your net worth. Also on this row i sum up all of the monthly expecting earnings and outgoings of these assets and liabilities to give me a rough idea of what the portfolio is bringing me in income terms each month.
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Why Bother Doing a Personal Balance Sheet?
I found this quite an interesting exercise. With so much of our finances dispersed around various online accounts, different providers, tied up in property, its easy to make the mistake of never adding up all of the pieces to see how big the pie is.
I simply take 5 minutes each month to update the current balances on all the accounts and mortgages (I track these on other spreadsheets) and on 1 page I have access to lots of useful information:
- Total Cash Savings – A useful number to know. This is the emergency money in case the car blows up or part of the house falls down (that reminds me I must get those cracks looked at). Lots of people say you should keep the equivalent of 6 months worth of salary in cash.
- Current Mortgage Interest Rate – It’s very useful to see all of the mortgage rates in one place, including any details of when fixed interest rate periods expire. As soon as they do i’ll be looking at remortgage options.
- Current Loan to Value – A useful metric to have at hand when considering remortgaging options.
- Yield – Obviously calculated for buy to let properties only. I ignore tax and expenses. This is simply the current annual rental income divided by the original purchase price.
- Net Income on Buy to Lets – This is simply the rental income less mortgage payment. If the figure is positive or too high it indicates I have a tax liability and may face a self assessment tax bill. If so it may be time to increase the mortgage. Again this is a quick calculation so I ignore the fact my buy to let mortgages are capital repayment loans plus the inevitable expenses that reduce this monthly income.
Finally with this additional information I am able to calculate the expected monthly income my net assets are generating.
What I Don’t Include
The temptation to make this spreadsheet infinitely complex is a big one. The aim however is to have a simple one pager that tells me all of the key bits of information about my investment portfolio.
1. My Personal Pension – This is a contentious one. I have a company pension scheme (defined contribution unfortunately), there is money in it, I am in control of where it is invested but I won’t be accessing it for at least another 20 years.
The purpose of this balance sheet it to help me understand where my finances are now and where I can get them in the next 3-5 years. I’ll be retiring before I draw that pension so I like to forget about it and make sure I’m comfortable enough without it.
2. Personal Expenses – In this tool I don’t include any of my personal income (wages) or expenses. The aim is to focus purely on the returns of my assets (cash, stocks and property). The income column shows what my assets are earning me, not what I am earning myself by continuing in the rat race. For me this difference is crucial in thinking about my assets as an investment portfolio and treating them as such.
3. BTL Expenses – Being a landlord is expensive. In the last month I’ve shelled out over £2,000 for a roof repair to one and some plumbing work on another. For the sake of simplicity I ignore these irregular expenses from my income calculation (on this tool) and simply focus on the mortgage being my only liability.
Why I Don’t Use Commercial Software For this?
Sure there are plenty of commercial software applications out there that will help me do this job (like Mint or Quicken) so why not simply use them? Well I don’t like being tied down to commercial software if I can help it. I don’t want to have to upgrade every year or migrate to something else if a service shuts down. Instead I use Excel which will always be around (for the foreseeable anyway!) and give me the flexibility to quickly and easily change how I represent this tool.
Can I Have the Tool Please?
Of course, you can download it for free here.
Nice spreadsheet! I do something similar that I might blog about soon, only mine is made of a few sub sheets that then get pulled onto the master sheet. Sub sheets include things like live prices for all my individual shareholdings.
This way I can look at the main page on days when I want to feel like I haven’t let my obsession with personal finance go too far, and dig into the weeds on the other days. (i.e. Usually! 😉 )
I think you should include your personal pension on the main sheet, though I see your reasoning. It’s an asset that is going to impact your future net wealth/income, if it didn’t exist now you’d probably look to create it (changing your flows and asset allocation) and it would probably also at least slightly dampen down what (to me personally) seems like a massive overweighting in property.
Given the purpose of the net worth sheet is to see where you stand, it seems to me inappropriate not to include it.
Like your website. Very clear and deep writing, and nice roomy layout. I’d prefer to see some dates on it, mind. (I get the SEO reasons etc why not, but I’m old fashioned… 😉 ).
Keep it up! I’ll hit your dividend post in my Weekend Reading this week.
Thanks for your kind comments!
You’re probably right about including the pension in my net worth sheet. As the years tick by it’ll start to get more and more important to my planning and it certainly would help to dilute my property exposure!
Trust me there is a whole array of sheets behind (or linked to) this main summary that i’ll probably write about in the future. I have a detailed xls for every mortgage where i track every payment ever paid as well as interest saved, outstanding balances etc. I track month end valuations of the equity portfolio and track all transactions (including dividends) so i can slice/dice it’s performance at will. All major spending (current accounts, direct debits and credit card) is tracked and categorised to allow analysis. All of these sheets are constantly being tweaked and developed over time. This flexibility is why I prefer to track all of this stuff in Excel. Basically I’m a sucker for a spreadsheet!
There’s an attractive simplicity to your spreadsheet! I’ve probably got a higher proportion of equities in my net worth and no property (other than the house I live in which I don’t include) and I found focusing on income easier, because the volatility of the capital base/net-worth has too much noise in it and not enough useful information. That’s equities for you 😉 Whereas looking back over the years, the S&S income is much more stable year-on-year, as a percentage of purchase costs.
I’m with Monevator in that your personal pension has a bearing on your here and now strategy, your savings/retirement income are a dependent variable with that as one of the inputs. There seems to be an expected 10-15 year interregnum between retiring and drawing it. Therefore, how much it is has an influence on how much you need to save to bridge that gap. Say it is enough to provide 100% of your post-55 requirements, then you need to save enough to provide for you for 15 years. If it’s 50% of your post-55 requirements then you need to save more, presumably using some sort of pension, though regulatory risk is always there.
With a 10-15 year gap you can fine tune this to converge, but your opportunities to take advantage of tax breaks will narrow more quickly as your remaining high tax paying years reduce. The drumbeat of politics also seems to be towards reducing annual contributions, and possibly towards only BRT tax-relief 🙁 These would appear to favour pension savings now rather than later?
Thanks. As with most things financial simplicity is usually best. What I haven’t revealed (yet) is the complex/detailed sheets behind most of the line items on it!
I agree that income should be the main focus. However for me asset allocation needs a lot of thought as I have such a large exposure to property.
I’ll be adding the pension pots to the sheet soon. Up until recently I’ve been taking a set and forget approach to my pension, focusing mainly on my property investments and ISA portfolio. However as the grey hairs continue to appear up top, it’s coming more and more to the fore of my thinking and planning as you suggest it should be.
Very nice and simple spread sheet. I agree with the other commentators that pension should be included. Just to keep it up there in focus, as time passes it will become ever more important.
My sheet is similar, I have all the assets in rows but on row 1 I have todays date, and for every column I keep monthly (or weekly if I want) up to date ‘liquid NAV’ and ‘pension NAV’ valuations so I can have a historical view as well as a snap shot.
This dated approach also allows me to project two key future values for in 2 years when I can be comfortably financially independent and in 9 years when I can draw my pension. (using FV(….) function for the two future dates). It is quite interesting to compare the target plan with actual performance.
I see you are an advocate of BTL, I have avoided this due to work commitments but once free of the shackles of work I would consider it, but to be honest I have > 150K in various commercial property investments trusts that have grown very well and are still paying great dividends without the hassle. The 40% tax generated is mitigated with VCT’s