You will be able to compare this year's statements with last year's and explain the change.
A year after Wei Ling built her net worth sheet in lesson 1.3, she opens it again and fills in this year's balances. The total has gone up by more than S$25,000. Her first feeling is pride. Her second is confusion, because she is fairly sure she did not save S$25,000 last year.
She is right. A change in net worth mixes several things together, and only some of them are your own effort. This lesson shows how to update both statements and pull the change apart, so you know what actually happened.
Update every balance on the same date as last time. Wei Ling built her first sheet on 1 March, so she updates it on 1 March.
The reason is the same as in lesson 1.3. Balances move all the time: savings jump after payday, investments move every trading day, CPF interest is credited once a year. If last year's figures come from March and this year's from a mix of January and June, the comparison measures your timing as much as your progress. Pick the date, keep it, and take each balance as close to it as you can.
Use the same rules as before, too. Assets at today's value, debts at today's outstanding balance, CPF on its own line, and two totals: with and without CPF.
Here is Wei Ling's update, with figures made up for the example. Last year she had S$18,000 in savings, investments worth S$7,500, S$57,000 in CPF, and S$14,000 of debts. Her net worth was S$11,500 without CPF and S$68,500 with it.
This year she has S$22,000 in savings, investments worth S$9,300 and S$71,000 in CPF. Her card balance is gone, her study loan is down to S$6,200 and she owes her parents S$1,800, so her debts total S$8,000. Her assets outside CPF are S$22,000 plus S$9,300, which is S$31,300. Take away S$8,000 and her net worth without CPF is S$23,300. Add the CPF and it is S$94,300.
The change is S$94,300 minus S$68,500, which is S$25,800. Now she splits it into three causes.
What she saved from her own pay comes to S$11,200. Her savings rose by S$4,000. She put S$1,200 of new money into her investments. And she cut her debts by S$6,000: S$1,200 off the card, S$3,600 off the study loan and S$1,200 repaid to her parents. Paying down debt raises net worth exactly as saving does.
What went into CPF was S$14,000, of which S$12,000 was contributions from her and her employer, and S$2,000 was interest.
What markets did was the rest. Her investments went from S$7,500 to S$9,300, a rise of S$1,800. S$1,200 of that was her own new money, so markets added S$600.
Check the sum: S$11,200 plus S$14,000 plus S$600 is S$25,800, the whole change. Her own saving accounts for less than half of it. CPF did more of the work than she did, and markets did very little this year. Next year the market line could just as easily be negative.
Net worth tells you where you ended up. The cash flow statement tells you why. Build this year's three-month statement the way you did in lesson 1.4 and set it beside last year's.
Darren does this, with figures made up for the example. Last year his average monthly income was S$4,500, fixed costs S$1,830 and variable costs S$1,950, leaving a surplus of S$720. This year his pay rise lifts his income to S$4,700. His rent went up S$150, so fixed costs are S$1,980. His variable costs are S$2,250, up S$300, and when he looks line by line, most of the increase is food delivery and a new gym membership.
His surplus is now S$4,700 minus S$1,980 minus S$2,250, which is S$470, less than last year despite the raise. Without the comparison he would have assumed a pay rise meant more room. In fact his spending grew faster than his pay, and his S$500 saving transfer is now quietly being topped up from his current account. He can choose what to do about that, but only because he can see it.
Some years your net worth will go down. Markets fall. You pay for a wedding, a renovation or a down payment from savings. You take a career break, or a pay cut to move into work you prefer.
None of that is failure, provided you know why it happened and it was a choice or a risk you understood. Wei Ling's wedding next year will probably take her net worth without CPF down, and she will know exactly why when she updates the sheet. A fall you cannot explain is the one worth worrying about, because it usually means money is leaking somewhere you have not looked.
That is why the explanation matters more than the number. Get last year's sheet out, and before you type in a single new balance, note the date you used last time.
Update your net worth sheet and write one sentence on what drove the change since your last update.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).