Ask Melanie | Ask Melanie: a new year, a new financial plan
Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to [email protected]
Start by adding up the value of everything you own and everything you owe. Subtract what you owe from what you own. That number is your net worth. It's worth knowing as it's the basis for working out many other things.
For example: whether you can afford to quit your job; whether you should marry for money; whether you can afford a divorce; whether to take on more debt; and how much you need to save, and for how long.
Set out, accurately, what you own and what you owe makes up your personal balance sheet, also now known as a "statement of financial position" or SOFP. All values should be at the same date. This crystallises your position so accurate comparisons can be made among items, and with future statements.
SOFPs are usually prepared at the end of the calendar, or tax year, or for any month-end or quarter-end in between. My SOFP is updated on a strict basis at the end of each calendar year and on a discretionary basis, dependent on needs and time, each quarter through the year.
List assets in classes, starting with cash and fixed income, followed by property, shares, MPF, loans to others, and a final class for anything miscellaneous (Hong Kong residential lease deposits for example). Exclude personal effects such as jewellery and antiques unless they are of high value and can be sold to fund your children's education or your retirement.