Compare this year's statements with last year's and say what caused the change.
Update your net worth sheet once a year, on the same date as last time and using the same rules. Then split the change into its causes. A change in net worth comes from several causes, and only some of them come from your own effort.
Wei Ling built her net worth sheet in lesson 1.3 on 1 March. A year later she opens the sheet and fills in this year's balances, again on 1 March. Her total is up by more than S$25,000 (her figures are invented for the example). She feels proud at first, then confused, because she is fairly sure she did not save S$25,000.
Before you type in any new balance, look at last year's sheet and note the date you used. Take every balance on that same date, or as close to it as you can. Lesson 1.3 gives the reason: balances move all the time. Savings jump after payday, investments move every trading day, and CPF interest is credited once a year. If you compare figures taken on different dates, you measure your timing as much as your progress. Pick a date, keep it, and take each balance as close to that date as you can.
Use the same rules as before. Assets go in at today's value and debts at today's outstanding balance. CPF has its own line. You calculate two totals, one with CPF and one without.
Last year Wei Ling had S$18,000 in savings, S$7,500 in investments, S$57,000 in CPF and S$14,000 in debts. Her net worth was S$11,500 without CPF and S$68,500 with CPF.
This year she has S$22,000 in savings, S$9,300 in investments 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 + S$9,300 = S$31,300. Her net worth without CPF is S$31,300 - S$8,000 = S$23,300. With CPF it is S$23,300 + S$71,000 = S$94,300. To get the change, subtract last year's total from this year's: S$94,300 - S$68,500 = S$25,800.
You can split the change in net worth into three causes: what you saved from your own pay, what went into CPF, and what markets did.
Own saving is the rise in your savings, plus any new money you put into investments, plus the debt you paid down. Paying down debt raises net worth in exactly the same way as saving does. The CPF part is the contributions plus interest. Usually you and your employer both contribute, and your employer pays both shares over to the CPF Board. At the lowest wage levels there is no employee share and only the employer pays, so check the CPF Board for the current wage levels. The market part is the change in your investment value minus the new money you put in. In some years the market part is negative. Once you have all three parts, check that they add up to the whole change.
For Wei Ling, savings rose S$4,000 and she put S$1,200 of new money into investments. She also 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. That makes her own saving S$11,200. Her CPF part is S$14,000, made up of S$12,000 in contributions from her and her employer and S$2,000 in interest. 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.
To check: S$11,200 + S$14,000 + S$600 = S$25,800.
She was right to be confused. Her own saving is less than half of the change, CPF did more of the work than she did, and markets added very little this year.
Net worth tells you where you ended up, and the cash flow statement tells you why. Build this year's three-month cash flow statement the same way as in lesson 1.4 and put it next to last year's. Compare income, fixed costs, variable costs and surplus. Then go through your spending line by line to find where any increases came from.
Darren did this. Last year his monthly averages were S$4,500 income, S$1,830 fixed costs and S$1,950 variable costs, leaving a surplus of S$720. This year a pay rise took his income to S$4,700. His rent went up S$150, so his fixed costs are now S$1,980. His variable costs are S$2,250, up S$300, mostly from food delivery and a new gym membership. His surplus is S$4,700 - S$1,980 - S$2,250 = S$470, which is less than last year despite the raise.
Without the comparison, he would have assumed the raise gave him more room. A pay rise doesn't automatically mean more room, because spending can grow faster than pay, and his did. His S$500 saving transfer is now being quietly topped up from his current account. He can decide what to do about it because the comparison shows him what is happening.
In some years your net worth will fall. Markets may drop. You might pay for a wedding, a renovation or a down payment from your savings. You might take a career break, or take a pay cut to move into work you prefer. A fall isn't a failure as long as you know why it happened and it was a choice or a risk you understood. Wei Ling's wedding next year will probably lower her net worth without CPF, and when she updates the sheet she will know exactly why.
The fall to worry about is one you can't explain. It usually means money is leaking somewhere you haven't looked. The explanation matters more than the number. If your net worth has fallen, check that you can say why and that it was a choice or a risk you understood.
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, then write one sentence on what caused the change since you last updated it.
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