Most Singaporeans do not gather or keep financial data. Do you?

These data are important to financial planners as they need them to evaluate their client’s past and current financial health status.  In order for financial advisers to give proper financial advice, they need to know the current assets and liabilities of their clients. This will indicate the financial strength of the individual. The ability of the client to generate cash flow is determined by looking at their cash flow, the inflows and outflows of their cash. Comparing the current health status with past records will determine whether an individual is progressing or regressing in his financial plans.

There are two statements to look at :

1) The Statement Of Net Worth (The Balance Sheet)

2) The Statement Of Cash Flows

The Statement of Net Worth shows the

1. Cash / Near Cash - the bank savings/current/fixed deposit,
2. Invested Assets – CPF savings, stocks, unit trusts, investment properties, business ownership
3. Personal Use Assets – Car, boat, own residence
4. Current Liabilites – credit card outstanding balance, short term loans
5. Long Term Liabilities – mortgage loans balance, car loan balance, study loan balance

The Statement Of Cash Flows shows the:

1. Income – Salary, bonus, commission, employer CPF contribution, dividends, bank interest, rental income
2. Expenses – Fixed and Variable expenses like rental, mortgage payment, childcare, personal, car and house maintenance…

Just looking at the individual numbers will not tell the whole story so we need Financial Ratios to give a clearer understanding of an individual’s financial health. That, we will look into in my next post. Look out for it!