Everybody wants a bargain, which is why shopping online has become so popular given you don’t need to leave the comfort of your home to do a comparison hunt. But unlike certain products that in time and with use has less value, a property is considered an asset, which means it will grow in value; will and should at sometime be worth more than it was initially purchased for.
Assets that increase in value have a bearing on your net worth, which is a reflection of your financial health after you deduct your liabilities (debt), those being costs and obligations you have such as credit card repayments, home loans, student loans, levies, taxes, and other financial responsibilities.
Who wants to know?
Everyone has a net worth, even if that is negative, and knowing what that is helps you to determine whether you can meet your financial goals, if you need to make changes in your spending habits, and whether or not you can afford to purchase a property. A net worth value is important because it can impact on your ability to secure a home loan from a bank. If you have a high net worth (positive) rating, home loan financiers consider you as low risk in terms of your ability to pay back the loan.
The South African Revenue Services (SARS) also wants to know what assets you own, and this is a listing requirement on your annual tax return. In this way they can calculate the tax on any profits you make when you sell your assets.
Another scenario where you may need to reveal your net worth, is for life insurance purposes. The life insurance company uses this to determine how much insurance they can offer, and how much the monthly premium will be.
How do you work out your net worth?
Citadel Wealth Management has a net worth calculator that is very easy to use. It reminds us that computers and other electronic equipment may be considered as assets, because although a computer does decrease in value over time and with use, if it is still in good working order, someone may wish to buy it from you as a used or pre-loved item. To determine if items such as computers have value, it is best to approach a consultant.
You really need to think about what assets you own because they may not be tangible. For example non-tangibles are things like investments in a stokvel, a savings account, retirement annuity, or pension fund.
Tangible assets may include your vehicle/s, livestock, jewellery, artworks, and antique furniture. Provided these tangible assets are considered to be valuable by a professional and credible assessor who can confirm the extent of value, they should also be factored into your net worth calculations.
Some items may not be considered as assets even if you spent a fortune on their acquisition, and if they are ‘fixed’ to a fixed asset. In a home for example, you may have installed very expensive gold taps but they cannot be considered as a separate asset because they are part of the home’s value, and deemed at unremovable in terms of a house sale.
As time passes, your financial situation is likely to change, which is why it is important to track your net worth at least once a year. Having that information to hand when you apply for a home loan will make it far easier for you and the home loan provider to ascertain the amount of home loan you can afford.