wealthmanagement-balance

Wealth Management & Balance Sheet

The personal Balance Sheet can help you to personally look into a few things. We will also share with you a couple of financial ratios which can help you better manage your money and finance.

Firstly, a personal Balance Sheet is to read into what assets you have and what liabilities you own. The answer would determine if you have a positive net worth or a negative net worth. It is obvious that having a positive net worth is better than the latter.

Secondly, a Balance Sheet looks into how solvent a person is. The more solvent a person is, the more healthy it is for the person.

Here are the information that is needed in your Balance Sheet:

A Balance Sheet is made up of 2 things, assets and liabilities.

Assets - car, house, stocks & shares, investments, cash, antiques, jewelries, business, etc.
Liabilities - housing loans, personal loans, fixed expenses, car loans, variable expenses.

Once you have those figures, do a simple sum of Assets - Liabilities = and see if you answer is positive or negative. If it is positive, it means you have a positive net worth, which is good. If your answer is negative, it means you have a negative net worth, which is no good. A negative net worth means you owe more than you own.

Go to wealth experts and ask a wealth query with regards to Balance Sheet.

Let us now share with you some financial ratios that you need to use to help you in your quest towards financial freedom.

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Solvency Ratio:
This ratio compares the total liabilities with regards to assets. It shows how much of a person’s assets really belong to him/her. Another area of looking is to observe that when a person’s liabilities exceed his/her assets, his net worth will be negative.

Solvency Ratio = Total Net Worth
                                Total Assets

A good Solvency Ratio is 50% and above. Anything below that would mean a person has borrowed excessively.

Financial Advice:
If a person’s solvency ratio is 50% and below, your advice would be:
1.To watch carefully, otherwise a person can become technically insolvent. Most of this insolvency can slowly lead to bankruptcy.
2.Start reducing debts.

Debt to Asset Ratio:
It measures the ability of a person to pay his/her debts.

Debt to Asset Ratio = Total Debt
                                      Total Asset

A healthy Debt to Asset Ratio would be about 50% or less.

Financial Advice:
If a person’s debt to asset ratio is above the 50% guideline, your advice would be:
1.Re-finance the debt if and when possible.
2.Pay up some of the debts if and when possible.

Liquid Asset to Net Worth Ratio:
This ratio will show what amount of a person’s net worth are liquid assets. It also shows the ability of a person to convert assets to cash to meet urgent emergencies such as death.

Liquid Asset to Net Worth = cash/cash equivalent (liquid assets)
                                                                   Net Worth

For a good Liquid Asset to Net Worth ratio, the guideline is at least 15%. The more the % the better.

Financial Advice:
If an individual falls below the 15% ratio, your advice would be:
1. Convert non-liquid assets to liquid. (Easier said than done. Normally an individual who has more non-liquid assets, which would be properties and real estates. In truth they are not easily liquidated. Assets such as Art and Antique collection will also be difficult to liquidate)