Topic Personal

Financial
Statements

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1.

Explain the importance of personal financial statements;

2.

Describe balance sheet or net worth statements;

3.

Describe the types of assets;

4.

Describe cash flow statements; and

5.

Analyse financial ratios.

X INTRODUCTION
Generally, personal financial statements are prepared to properly plan and to
sort out the financial matters of an individual. There are particular objectives that
require the preparation of personal financial statements, such as obtaining a loan,
planning of income tax, retirement planning and estate planning. In our daily
lives, if we wanted to reduce our weight, we have to weigh ourselves. If we are
determined to be a skilful driver, we need to time our laps. Therefore, if we want
to be rich or financially free, then we have to design and create our own financial
statements.
An individual can actually be described as a business. We receive money or cash
and we have money to spend. We have things that we own and things that we
owe. If we could not find a way to gauge progress and differentiate what really
works and what does not, then we are lost without any direction, in terms of our

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finances. Keeping track of personal finances can help prevent m credit card debt,
losing ones home or retiring without any savings. In addition, something
delightful may happen when you start to evaluate your progress. If you fail to
look at your financials about once a month, it shows that you are not serious
about achieving financial freedom.

ACTIVITY 8.1
Discuss with your course mates the importance of personal financial
statements.

8.1

IMPORTANCE OF PERSONAL FINANCIAL

STATEMENTS

What is a personal financial statement? Every one of us has our own definition of
what a personal financial statement is. For example, a personal financial
statement tells us how strong our financial position is. As in business, the
personal financial statements can comprise assets and liabilities. Through
understanding personal financial statements, we can learn many important
lessons. Firstly, it will allow us to manage and organise our assets. Assets here
include investment of individuals or personal ownership of things that generate
income and profit for individuals. This can be stocks, precious metals like gold
and silver, businesses and real estate. Liabilities are expenditures and will not
generate any revenue for the individual.
The important factor here is assets, which are things possessed that generate
revenue and enhance individual net worth. The net worth of the individual
represents the wealth of the individual from the personal finance point of view.
Let us say, if you incur personal expenditure of $20,000 a year and your net
worth is $80,000 and if you are unable to generate any income, then it will take
you four years to have $0 net worth. Another important lesson that you can learn
is that every month, it is vital for the individual to take note of his or her positive
cash flow in the financial statement. Cash flow is the amount available after
subtracting your expenses from the income you generate. A positive cash flow
will allow you to build good financial management skills, especially in
accumulating wealth over the long term.

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By managing your personal finance, you learn how to protect assets, build
business, invest profits and maximise value. You will find that in the current
information age, wise financial management and eagerness for knowledge will
allow individuals to develop and grow wealth. You will realise that there will be
many benefits to having wealth, such as providing for your family and loved
ones as well as helping the needy. The best part about developing your skills in
personal finance is that, like other kinds of learning, it is also a process of
continuous learning and you can grow by consistently applying your knowledge.

8.2

BALANCE SHEET OR NET WORTH

STATEMENT

The term balance sheet is adopted from accounting. Balance sheets and income
statements are prepared by accountants or account executives mainly for
business use. They use a double-entry bookkeeping system to produce a balance
sheet. The balance sheet will show that all assets will balance with the liabilities
and owners equity. The income statement surplus will be carried forward to the
balance sheet under owners equity, which is called net worth. Another term
used for this statement is source and application of funds.
The information which appears in this statement is based on historical
information. Accountants employ historical cost and not market values.
However, in personal finance, we need to adopt current values. Therefore, we
will need to know the market value of our assets and the current value of our
liabilities.
Assets (A) = Liabilities (L) + Net Worth (NW)
Example 1:
A family has a current balance sheet equation as follows:
A = $10,000; L = $7,000; therefore, NW = $3,000.
The family works hard at saving and is able to save $5,000. It uses $2,000 to
acquire more assets and uses the remaining $3,000 to pay off some debt. Its new
balance sheet equation is: A = $12,000; L = $4,000; NW = $8,000.
Increased savings have resulted in an increased net worth.

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Example 2:
Beginning balance sheet equation (A = L + NW)
A = $10,000; L = $7,000; therefore, NW = $3,000
Another family spends all of its income and does not save anything. At the same
time, one of its assets depreciates in value by $3,000. Its new balance sheet
equation is as follows:
$7,000 = $6,000 + $1,000.

ACTIVITY 8.2
With your course mates, discuss the types of assets included in a net
worth statement.

8.2.1

Assets

Assets can be divided into different classes or categories. Analysing the various
classes of assets is very important in financial planning. There are three major
categories of assets:
(a)

Cash or cash equivalents (also known as liquid assets);

(b)

Investment assets; and

(c)

Personal use assets.

The placement of assets into various categories depends on the reason the assets
were acquired and how the assets are viewed by the individual. For example, if
you have acquired a painting for viewing and have no plan to resell it, the asset
will be classified as a personal asset. However, if the painting was bought for its
potential value appreciation in the future and it will eventually be sold, then it
will be put under the investment asset category.

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In accounting, assets are categorised as current assets and fixed assets. Those
assets that have a shelf life of less than 12 months are categorised as current
assets. Current assets will be converted into cash within 12 months. Meanwhile,
fixed assets are utilised in the business for more than one accounting period.
Fixed assets are used to assist in the production of goods and services. From a
personal finance perspective, we look at the purpose and use of assets. Table 8.1
shows an example of the assets column in a balance sheet.
Table 8.1: Asset Column in a Balance Sheet
Cash/cash equivalents
Checking account

XXX

Savings account

XXX

Fixed deposits

XXX

Money market account

XXX

Life insurance cash value

XXX

Total cash/cash equivalents

XXXX

Investment assets

XXX

Stock portfolio

XXX

Savings bonds

XXX

EPF balance

XXX

Unit trusts (Net assets value)

XXX

Property for rental

XXX

Total investment assets value

XXXX

Personal use assets

Personal residence

XXX

Automobiles

XXX

Art/stamp/coin collection

XXX

Personal Property(e.g.,
jewellery, clothing)

furniture,

fittings,

XXX
XXXX

TOTAL ASSETS

XXXXX

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Analysis of Assets

Cash or cash equivalents can be turned into cash within a short period of time.
Investments are assumed to be less liquid and it will take a longer time to be
converted into cash. Other investment assets can be classified as retirement
assets, which can only be realised after retirement, like the Employees Provident
Fund (E
EPF) (see Figure 8.1). Meanwhile, personal use assets are assets which
portray the individuals lifestyle. They are unable to generate income and all
these assets are made known in their current fair market value.

Figure 8.1: Logo of EPF

Sometimes, it is difficult to value some assets such as business ownership

interest. To value a business interest, accounting concepts can be utilised.
Otherwise, we can just forecast the fair market value which can be acquired on a
willing buyer-willing seller basis. Business valuation is important for the
purpose of estate planning. In personal financial statements, assets are also
known as things that belong to a husband and wife, whether it is owned by both
husband and wife, whether survivorship rights exist, whether it is joint tenancy
or tenancy in common.
(a)

Emergency Use of Assets

We need assets for emergency use and those assets must be liquid or can be
converted into cash in a short period of time. Having cash, or cash
equivalents, as an emergency fund is a wise thing to do. But how much is
needed depends on the situation. Normal emergency funds can cover six
months of expenses, which is considered a safe amount to have. However,
not all assets must be kept liquid. Assets are needed to finance our longterm objectives. Therefore, we need our asset values to appreciate to fund

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our long-term objectives. Long-term assets usually have greater future

value compared to short-term assets. Sometimes, assets are also needed to
be used as hedging against inflation. The growth rate of the assets must be
higher than the rate of inflation. In view of that, it is very important to have
long-term assets in personal financial planning.
(b)

Personal Use Assets

It is normal for us to have a large portion of value in our personal use
assets. Your house and cars will be the biggest value of your personal
assets. Nevertheless, those assets will not contribute to income generation
during the retirement period. During retirement age, income for living
expenses is always a major concern for people. Due to that, having
investment or financial assets to generate passive income is very crucial to
most people.

8.2.3

Liabilities

The balance sheet, or net worth statement, shows a clients outstanding debts or
loans. It will show the loan principal or outstanding debt up to the present date.
If you stand as a guarantor to a loan applicant, there is a chance that a liability
will exist. Thus, it will be wise to take note of the situation and monitor the loan
performance carefully. Many people face financial problems when they stand as
guarantors for a loan applicant. Even though it is very risky to be the signatory,
banks still persist on this issue. There are many instances where people face
problems as a result of being kind to friends and family and agreeing to become
their guarantor.
(a)

Short-term and Long-term Liabilities

Liabilities can be categorised into two groups: short-term and long-term.
From the accounting point of view, short-term liabilities must be settled
within 12 months. Some short-term liabilities that need to be settled in a
short period of time are outstanding balances on credit cards and debt.
Mortgage debts are also cleared on a monthly basis. In personal finance,
once you incur a liability, it becomes a current and short-term liability.
Even though most loans are long term, their payments are made on a
monthly basis. Any failure to pay the loan payment will cause the bank to
call in the loan. Problems of this nature can cause messy financial
situations.

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Assets charged to the bank as collateral will be pulled back or will be sold
by the bank in order to recover the outstanding amount. This will leave the
loan borrower in a financial turmoil. If the borrower is declared bankrupt,
the problem will be compounded, where the insolvency department will
come in and take over the management of borrowers income and assets.
(b)

Contingent Liability
If you lease or rent a property for a specific period, the entire full-term
outstanding amount can be considered as a liability. This financial
commitment will affect your net worth. This is what we call a contingent
liability. You are obliged to make payment or redeem contingent liabilities
if they become unfavourable to you. Contingent liabilities that seem to be
less likely to happen can be put as a footnote in the statement. Table 8.2
shows the liability column in a balance sheet.
Table 8.2: Liability Column in a Balance Sheet

Liabilities and Net Worth

Liabilities
Housing Mortgage (principal balance)

XXX

Auto loan balance (the remaining outstanding of full term payment)

XXX

Credit card balances (each credit card reflected separately)

XXX

Other loans and commitments

XXX
TOTAL LIABILITIES

XXXX

Net Worth
The difference between Total Assets and Total Liabilities

ACTIVITY 8.3
Discuss the type of liabilities in a net worth statement.

XXXX

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8.2.4

Net Worth

PERSONAL FINANCIAL STATEMENTS

In simple words, net worth is the amount of your total assets minus your total
liabilities. Liabilities are borrowings or loans and this includes your car loan,
study loan, mortgage and credit card balances. Meanwhile, assets are things that
are owned by you. These can include your car, cash, jewellery and retirement
savings. Therefore, the net worth can change based on the value of these assets
and liabilities. If the amount of your assets is greater than that of your liabilities,
than your personal net worth is positive. If the amount of your assets amount is
less than the amount of your liabilities, then your net worth is negative. Table 8.3
shows an example of a personal net worth statement.
Table 8.3: Personal Net Worth Statement
ASSETS

RM

RM

Real Estate
Market value of home

300,000

Non-retirement savings
Emergency funds

7,000

Savings

12,500

Investments

60,000

Retirement account
AIA

45,000
Total Assets

424,500

LIABILITIES
Real Estate
Mortgage

150,000

Personal Debt
Credit Cards

6,000

Car loan

4,000

Student loan

25,000
Total Liabilities

PERSONAL NET WORTH

185,000
239,500

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Cash Flow Statement

The cash flow statement is probably more important than the net worth
statement. Cash flow statements reveal the cash coming in and the cash going
out. In other words, it shows your income and expenses for a given period. There
will be a net income if your total income exceeds your total expenses and there
will be net deficit if your total expenses exceed your total income. You definitely
cannot spend any money that you do not have. Therefore, deficits will be covered
through loans or borrowing.
Many of us are doing what the government is doing, where budget deficit is
financed through borrowings. For the government, the reason to borrow and
spend is to fuel the economy. For us, we have a budget deficit to fulfil our needs
and wants for todays consumption. We want to consume the goods and services
at present and, therefore, we are willing to use our future income for our present
needs and wants. Our debt will increase and very soon half of our income will be
spent to pay our loans and borrowings. Even the government in Malaysia today
utilises more than 50% of the revenue every year to pay its fixed loan
commitments. The government uses 25% of the revenue to pay the benefits and
remuneration of civil employees and another 25% used as expenditure for the
development of the country. These borrowings will continue to take place in
order to grow the economy. Therefore, we must be aware of this drawback. The
government has the ability and capacity to increase taxes and print money
whereas we cannot. This shows that we must be able to live within our means.
We must ensure that our cash inflow must always be greater than our cash
outflow (see Table 8.4).

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Table 8.4: Cash Flow Statement

Cash Inflows
Salaries and cash perquisites

XXX

Dividend received

XXX

Interest income

XXX

Distributions from unit trusts

XXX

Bonuses

XXX
Total Inflows

XXXX

Cash Outflows
Savings and Investments

XXX

Fixed payment on loans/credit cards/insurance

Mortgage payments/rents

XXX

Auto loan payments

XXX

Insurance premiums

XXX

Taxes (Pay as you earn)

XXX

Credit card payments (minimum payments)

XXX

Total Fixed Outflows

XXXX

Variable payments
Food

XXX

Transportation cost

XXX

Clothing and personal care products

XXX

Sports and entertainment/vacations

XXX

Medical/dental care for family

XXX

Utilities and household expenses

XXX

Child expenses (food, clothing and education)

XXX

Miscellaneous

XXX

Total Variable Outflows

XXXX
Total Outflows

XXXX

NET INFLOW

XXXXX

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(a)

PERSONAL FINANCIAL STATEMENTS

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Active Income versus Passive Income

Active income is very well known to us. Income that is generated from our
own active efforts to earn cash is called active income. For most of us, this
involves doing some kind of traditional job. We can also derive active
income through our effort to get cash from a side business or odd jobs. This
kind of income is called active income because we have to perform
something. When we perform something, we need to expend considerable
effort or time. You are still considered as an active income earner even if
you sit in an office without doing any physical work. This is because you
are required to go through the work process and need to perform certain
tasks. Even though it does not require physical involvement, it requires you
to think.
Meanwhile, when you earn from the money that you put to work for you, it
is known as passive income. There are some people who believe that
income derived from short duration of activities is also known as passive
income. However, this requires very minimum effort to maintain the flow
of income. For instance, you take some time to design a website and
associate it with the advertising site. You just need to spend minimum time
and effort upfront only. After that you are no longer required to spend
more time and effort. Cash will flow in with very minimum of continuous
effort.

(b)

Cash Inflow Analysis

Cash inflows are very important to ensure the survival of the family. When
discussing financial planning, the steadiness of cash inflows is crucial. Cash
inflows will indicate whether you can achieve early retirement by
comparing your passive income to active income. Income generated from
investment eventually must replace your active income during retirement.
You need to approximate the increase of the income in the future as well.
Below are the areas that must be considered when analysing cash inflows:
(i)

Income Stability
The stability of income is not only important, but it also helps you to
enlarge it. We work very hard in our lives looking for good income.
Once we reach mid-life, there will be some disturbances to our income
and therefore the stability of income is very crucial. Those who
venture into business experience some uncertainty in their income.
Many of these people go through lasting problems to the position of
their income.

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(ii)

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Income Fluctuation
Usually, income fluctuation is experienced by those who are involved
in business or are self-employed. Our fixed commitments can cause a
challenge to those getting irregular incomes. Individuals who fall in
this situation must have a half-year emergency fund to manage these
unbalanced income patterns. It is normal to have middle-age crisis
and change in career. Some people try to go on their own after being
employed for so long. These circumstances will result in some
disruptions in income and it could cause a loss in savings. Although
many people can get through these business hurdles, there are also
many of them who fail due to lack of business sharpness, capital or
marketing skills.

(iii) Deduction from Gross Income

In Malaysia nowadays it is common for various deductions to be
made from ones income via payroll in Malaysia. Since the introduction
of Scheduled Tax Deduction scheme, taxes are currently subtracted
from gross salary. The computation of these taxes is based on income
estimates for the current year. Upon the final submission of tax
returns, necessary adjustments will be made. Some other direct
deductions that can cause a reduction in net income received are loan
repayments and saving contributions. Many people will have nothing
left after all their deductions via payroll. Incomes can be shown as
gross income where all the deductions made are known as expenses.
By doing this, we can know where all our income is going.

SELF-CHECK 8.1
1.

Explain cash inflows and cash outflows.

2.

Discuss the different types of income.

8.2.6

Expenses Analysis

Expenses are very crucial and they are the main component that people are
concerned about when it comes to their personal finances. In most circumstances
where income is fixed, any excess that will be put in savings can be derived from
expenses analysis. However, it is important to differentiate between fixed
expenses and variable expenses. The type of expense also reflects the urgency
and importance of the expenses. Long term objectives can be achieved by
forgoing or postponing discretionary expenses, which will allow us to
accumulate savings.

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Savings and investments are categorised into two separate categories. We

sometimes hear people ask, Do you save and spend the balance or do you spend
first and save the balance? This goes to show the importance of savings and
investments, and they are placed in separate category.
Loan commitments comprise common fixed payments. Credit cards are deemed
to be fixed because people have the tendency to only pay the minimum amount
of their outstanding balance. Other things like payment of alimony and child
support payments will be more common in the future due to the increased
incidence of divorces.
Tax is another important category. Taxes are categorised as fixed to explain the
P.A.Y.E. (pay as you earn) system. However, taxes depend on income earned.
With regards to self-assessment and current year tax system, we need to
approximate our income correctly to ensure the tax at the source is sufficient to
cover the final tax calculation.
Meanwhile, it is difficult to trace or monitor variable expenses because payment
will normally be made in cash from our pocket. We need to be disciplined and
write down all these expenses for our analysis in the future. It is advisable to
have a system where we can record our incurred expenses within the same day.
We will feel that trying to keep record of these expenses is a difficult task unless
we adopt the imprest cash system for the use of our cash and credit cards.
(a)

Fixed versus Variable Expenses

The main analysis will include differentiating the fixed expenses from
variable expenses. Using current income to settle the fixed commitments is
compulsory. Even though there are guidelines about how much burden of
debt we can accept, many of us do not abide by these guidelines. Personal
loan and credit cards (see Figure 8.2) can adversely interrupt our cash flow.
These easily approved debts are usually very high cost. Interest charged
and paid on these two kinds of debt can be better used or saved for more
worthy things in the future.

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Figure 8.2: Use of credit cards can interrupt our cash flow

(b)

Degree of Control Over Expenses

If our objective is to save money, then we need to analyse our expenses and
decide whether those expenses can be forgone to place in our savings plan.
The level of control that we have over our expenses is very important. The
way we spend our money will decide our lifestyle. If we want to save some
of our money, we must put aside some of our lifestyle expenses. Some of
the expenses are related to our habits, such as alcohol, cigarettes and
entertainment, which are difficult to forgo. Obviously, it is not easy to let go
much of our lifestyle expenses. Nevertheless, if we give priority to
achieving our goals, we will have to trim our expenses wherever we can. If
our money is placed in some committed savings scheme, we will be less
likely to spend it. We may reduce our spending and lavishness because we
have less cash after putting aside some of our money. Provident funds, real
estate and even life insurance are some examples committed scheme.

(c)

Necessary versus Unnecessary Expenses

It is really a bad financial habit if we want to follow and compete with other
people in terms of lifestyle spending. We need to check whether our
expenses are necessary or if they can be forgone. The quality and costbenefit ratio of our expenses need to be observed. One of the main areas of
analysis is our choice of education. Nowadays, college education is quite
expensive. If we make a wrong decision in this matter, it will hurt our
finances. There are many cases where students change their course mid
way and sometimes after they graduate. Sometimes parents tend to be
ignorant in understanding the needs and wants of their children. Many
parents try to persuade their children to follow the parents values. Other
parents may let their children make this important decision on their own
without proper guidance. Therefore, the right decision for a good education
will allow parents to save their precious cash flows.

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(d)

PERSONAL FINANCIAL STATEMENTS

W 137

Net Cash Inflow

We always hope that we will have a net inflow, where our income is greater
that our expenses. Nevertheless, we need to realise that net cash inflow can
occur because of the difference in time, mistakenly recorded or even
incorrect accounting. When there is excess in the net cash flow, we will find
that there is an increase in our cash in hand and cash in bank. However,
when expenses are greater than our income, the extra expenses will be
financed through borrowings or loans. Nowadays, with credit cards, we
can make use of plastic money to enlarge our spending power. By making
payment for only 5% of the outstanding credit card balance, we can borrow
or leverage up to 20 times. Therefore, our concern here is not the net
surplus but the variable and fixed cash outflows.

SELF-CHECK 8.2
Discuss the type of expenses in a cash flow statement.

8.2.7

Financial Ratio Analysis

In accounting, financial ratios can be used as a tool to examine our financial

position. Numbers generated from statistics are less likely to deceive us even
though those numbers are not always telling the complete truth. Therefore, there
are some ratios that can be utilised in financial planning. In order to calculate the
rations, we need to prepare our financial statement. The following ratio
calculations are based on Table 8.5 and Table 8.6.
(a)

Basic Liquidity Ratio

Liquidity is the ability to convert an asset into cash within a short period of
time. Disposing the asset should not result in any loss being incurred or the
asset being sold at a much lower margin. We can sell many things at a high
discount. Liquid assets imply that we can get the market value or very close
to market value when we dispose of our asset. A basic liquidity ratio shows
how many months your cash or cash equivalents assets and other liquid
investments could continuously cover your expenses in case there is no
income.
To obtain monthly expenses, we need to take the total outflow divided by
twelve months.
= RM110,000/12 = RM9,167

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Cash or cash equivalents plus other liquid investments = RM30,000

Basic Liquidity Ratio = RM30,000/RM9,167 = 3.27
The ratio shows that your cash or cash equivalents assets and other liquid
investments could cover your expenses for less than three and a half
months in case there is no income. Based on the rule of thumb, it would be
wise to have three to six months covered by your liquid assets in case of an
emergency.
(b)

Liquid Assets to Net Worth Ratio

A liquid asset to net worth ratio tells the size your net worth in the form of
liquid assets. The lowest accepted rate would be 15%.
Liquid asset to net worth ratio equals liquid assets divided by your net
worth.
(RM30,000/RM173,000) u 100 = 17.34%
Your liquid asset to net worth ratio indicates that you have more than the
minimum of acceptable rate of 15%.

(c)

Savings Ratio
The savings ratio specifies the proportion of gross income that you put
aside for future spending. These savings are very crucial to meet your
retirement objectives. A savings ratio of 10% is assumed to be good.
Savings ratio = savings divided by gross income
= (RM8,000/RM92,000) u 100 = 8.70%
In this instance, your savings does not include your EPF contribution. You
just assume that your salary is net after deducting the EPF contributions. If
you want to take the EPF contribution into account, then the savings rate
will be 12% + 11% + 8.7% = 31.7%.

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(d)

PERSONAL FINANCIAL STATEMENTS

W 139

Debt to Asset Ratio

This ratio gauges your capability to meet your debt. It is also a
measurement of your solvency. It shows how much assets you have to
settle your debts. Debt to asset ratio of 50% or lower is assumed to be on the
safe side.
Debt to asset ratio = total debt divided by total assets
RM183,000 / RM356,000 = 51.4%
You may have enough income to cover your expenses but may still not
necessarily be in a good position to settle your debts by using your
available assets. This is not a good situation because you will remain in
debt since you are unable to settle your debts. An additional or sudden
appreciation in your asset value could be one of the avenues for you to clear
your debt. However, if you remain in this position, you are prone to
bankruptcy.
You may also face a situation where you have assets but do not have
income to make repayments towards your debt. Not all assets can be
disposed of easily and in a short period of time, such as your business, and
this will cause you to face cash problems.

(e)

Debt Service Ratio

This is an important ratio that explains the availability of percentage of
your income to cover debt payments of your mortgage and consumer loans.
A rate of less than 35% implies that you are in a strong position to settle
your debt repayments.
Debt service ratio = annual debt divided by annual take home pay
Annual debt = mortgage debt + auto loan + credit card payment
= RM17,000 + RM8,000 + RM6,000
= RM31,000

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Annual take home pay = RM92,000  RM11,000

= RM81,000
Debt service ratio  RM31,000 / RM81,000 = 38.27%
The above example shows that you are quite comfortable with the debt
repayments even though it is slightly higher than ideal debt service ratio.
This ratio variation is non-mortgage debt service ratio.
Non-mortgage debt service ratio = annual non-mortgage debt repayments
divided by annual take home pay
The lower ratio is desirable. Non-mortgage debt service ratio that is less
than 15% is assumed to be healthy. A ratio of 20% signifies a high situation
of non-mortgage debt.
In this instance: RM34,000  RM17,000 = RM17,000
= RM17,000 / RM81,000
= 20.98%
(f)

Net Investment Assets to Net Worth Ratio

This ratio calculates the proportion of investment assets to net worth. This
implies on-going capital accumulation. A high ratio signifies that you have
built up sufficient financial or investment assets that can create investment
income during your retirement years.
Net investment assets to net worth ratio = net investment assets divided by
net worth
= RM116,000 / RM173,000
= 67.05%
In this instance, a net investment asset to net worth ratio is very good. It
shows you are very concerned about asset accumulation and have been
accumulating assets quite well.

TOPIC 8

PERSONAL FINANCIAL STATEMENTS

W 141

Table 8.5: Balance Sheet or Net Worth Statement as at 31/12/2013

Cash/Cash equivalents

RM

Current account

4,000

Savings account

3,000

Fixed deposits

7,000

Money market account

6,000

Life insurance cash value

10,000

Total cash/cash equivalents

30,000

Investment assets
Stock portfolio (market value as at 31/12/2013)

16,000

Savings bonds

18,000

EPF balance

70,000

Unit trust (net asset value)

12,000

Property for rental

Total investment asset value

0
116,000

Personal use assets

Personal residence (market value)

150,000

Automobiles (market value)

30,000

Art/coin/stamp collection

10,000

Personal property (furniture, fittings, jewellery and clothing)

20,000

Total value of personal use assets

210,000

TOTAL ASSETS

356,000

Liabilities and net worth

Liabilities
Housing mortgage (principal balance)

RM
120,000

Auto loan balance (the remaining full term payment outstanding)

40,000

Credit card balances

15,000

Other loans and commitments (overdraft)

TOTAL LIABILITIES

8,000
183,000

Net Worth
(Difference between total assets and total liabilities)

173,000

Total Liabilities and Net Worth (equals Total Assets)

356,000

142 X

TOPIC 8

PERSONAL FINANCIAL STATEMENTS

Table 8.6: Cash Flow Statement for the Year Ended 31/12/2013
Cash inflows
Salaries and cash pre-requisites

RM
70,000

Net dividends received

4,000

Interest income

2,000

Distributions from unit trusts

3,000

Bonuses

13,000

Total inflows

92,000

Cash outflows
Savings and investments

8,000

Fixed payments on loans/credit cards/insurance

Mortgage payments/rentals

17,000

Auto loan payments

8,000

Insurance premiums

4,000

Taxes (pay as you earn)

Credit card payments (minimum payments)
Total fixed outflows

11,000
6000
46,000

Variable payments
Food
Transportation

15,000
8,000

Clothing and personal care products

11,000

Sports/entertainment/vacations

10,000

Medical/dental care
Utilities and household expenses

2,000
12,000

Child expenses (food, clothing and education)

3,000

Miscellaneous

3,000

Total variable outflows

64,000

Total outflows

110,000

Net inflow (outflow)

(18,000)

TOPIC 8

PERSONALL FINANCIAL ST
TATEMENTS

W 143

Preparing person
nal financial statements is very im
mportant in financial
f
plann
ning.

Stateement of nett worth and cash flow statement

s
aree the two im
mportant
comp
ponents of peersonal financcial statementts.

Finan
ncial ratio analysis
a
can help us to better understand our financial
f
posittion.

Asset

Fin
nancial ratios

ow statementt
Cash flo

Fin
nancial statem
ment

Cash in
nflow

Liaability

Cash ou
utflow

Neet worth

Incomee

Neet worth stateement

Expense

Koh, B., & Fong, W.

W M. (2012). Personal fin
nancial plann
ning (4th ed.)). Upper
Sad
ddle River, NJ:
N FT Press
Frasca, R.
R R. (2009). Personal
P
finan
nce: An integr
grated plannin
ng approach (8th
(
ed.).
Bosston, NJ: Pren
ntice Hall.
Madura,, J. (2010). Peersonal financ
nce (4th ed.). Upper Saddlle River, NJ: Prentice
Haall.