What Is Your Net Worth?

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.