By now, some of us may have already plotted the financial goals we want to achieve this 2022. These may include getting out of credit card debt, growing your bank savings, investing in stocks or a small business, etc. The bottom line is, this year we want to be in good financial shape.
But to effectively set and achieve all the above targets, it’s important to have an idea of our overall financial standing. How do we do that? By knowing our net worth.
Financial adviser and host of ANC’s “On the Money” Salve Duplito says it’s best to do this activity at the end or the start of the year. “You can’t improve something that you can’t measure,” she points out. “So it’s useless trying to save and invest if you don’t know at certain times of the year if you’re doing well or not.” She likens one’s net worth to a report card. It’s one way to measure if you’re making progress.
What is net worth?
There are three terms we need to understand in the SALN acronym—assets, liabilities, and net worth. And it only takes five easy steps to compute your net worth.
Steps 1 & 2: Have a list of your assets and add them up
“An asset is basically anything that you have that you can turn into cash, so a big butt doesn’t count as one,” Salve says jokingly.
Assets (what you own) can be broadly categorized into three. First are the cash or near-cash (ex., money in your savings account, time deposit, or money market fund). Second are your investments or earning assets—e.g., stocks, bonds, mutual funds, cooperative funds, properties that you don’t live in, businesses that you can sell. Third are your long-term or non-earning assets. These are things that you don’t intend to sell or lease out at the moment—say, the house that you’re living in, the car that you use every day, the Mac you use for work.
Steps 3 & 4: List down your liabilities and add them as well
Liabilities (what you owe) are your debts. These could be short-term (meaning, you need to pay them within a year like your credit card) and long-term debts (e.g., housing loan).
Step 5: Subtract the amount of your total liabilities from your total assets
Net worth is the difference between what you own and what you owe. In even simpler terms, “Ano’ng meron ka, ano’ng kailangan mong bayaran, ano yung natira?” explains Salve. It’s simple math.
“Kunwari, malaki ang assets mo—meron kang investments, meron kang ipon, meron kang property, ina-add yun lahat. Tapos ima-minus mo lahat ng utang mo. Tapos yung natitira, yun ang net worth mo,” she says. “What you own and what you owe. Pagbabanggain lang yung dalawa.”
If you see that your liquid assets (those that can easily be converted into cash) are smaller than your debt, it means one thing: “Houston, you have a problem.” Your list of assets and liabilities will raise a red flag.
Your net worth will give you a clear picture of your overall financial health. “But it’s not a sign that you’re a bad person,” Salve would always tell her clients. “It’s not a judgment ng buo mong pagkatao. But it will show you that there are things that you need to do, and you really have to face that. Otherwise hindi tayo mag i-improve.”
She gives an example to further illustrate what she means. If you’re a Gen Z, who just got your first job, you don’t have a lot of assets yet. You have bank savings and you don’t have debt. That means, you’re doing okay.
But if you’re a millennial in your thirties and you have thousands of credit card debt, don’t have any investments and don’t own any properties, your net worth will turn out to be negative. “Ang ibig sabihin nun, kailangan nyang mag catch up for the year. Dun mo din makikita kung ano ang pinaka unang financial goal mo dapat. So kung negative ka, ang unang financial goal mo is not to invest, it’s to pay off your debt.”
Salve recommends preparing one’s SALN at the start of every year. “Sobrang happy to see your net worth increasing every year. If you’re on the right track, if you’re doing the right thing, it’s a great way to give yourself a pat on the back,” she says.
[For more questions on this topic or other finance inquiries, message Salve Says on Facebook.]