Determining your net worth

The following is an example of net worth for someone who has been working for 10 years in Malaysia.

Mr. Ali’s NET WORTH

Mr. Ali is currently working as a manager in a company. Last year, as a result of his promotion to a managerial position, he decided to reward himself by buying a new car worth RM83,000 with a bank loan of RM66,000 to finance the purchase. This year, as a result of one-year’s depreciation, his car is now worth RM75,000, a total depreciation of RM8,000.

He has an apartment that is worth RM150,000 with an outstanding housing loan of RM100,000. As a result of the two big down payments on the apartment as well as his new car, he does not have much cash left for his stocks and unit trust investments. In fact, he has just withdrawn a portion of his unit trust investments for the new car.

As a result, his total investment assets of stands at RM100,000 only. In fact, the main portion of his investment assets is his EPF, amounting to RM60,000, which he needs to save for his retirement. In excluding the EPF, he effectively only has RM40,000 investment assets after 10 years of working.

As far as a banker is concerned, there is no need to distinguish whether those assets are for investment or non-investment. A banker will consider his net worth of RM158,000, derived from his total assets which are worth RM325,000, with his total liability of RM167,000. However, for the purpose of assessing his net worth in the context of financial freedom - without considering the non-investment assets, he in fact has a deficit of RM67,000. He is still very far from securing financial freedom.

Hence, in order to attain financial freedom, the first objective of Mr. Ali would have to be clearing all his debts as soon as possible. By doing this, he would then be able to generate enough investment assets to cover his expenses.