 “Yow, da man deh have money, me ah tell yu!”
It's not a strange comment. We’ve probably made it ourselves in relation to our local captains of industry and even among more obscure citizens who have the appearance of wealth.
A senior marketing executive was once overheard describing many Jamaicans as living a life where “ the perception of wealth was more important than the reality of poverty.” This in reference to the apparent situation where in order to maintain appearances “ with the Jones” the Jamaican will borrow or rent the “ status” rather than live a life within their financial means. Preferring to borrow in order to support the illusion of wealth.
There are those who will also argue that many of us are judged and placed into a particular socio economic group based solely on physical things such as the type of car driven, size of the house and where it is located. Many of these things fail to reveal the true financial position of the individual. We often hear the story of individuals living out of their expensive car as they cannot afford the rent and the car payments.
But what exactly is it that makes one rich? Is it the customary material trappings? The luxury auto, split-level hillside home overlooking the city, seemingly endless parade of designer clothing and jewellry that would cause most onlookers to squint? Is it all of these things or none of them?
The concept of net worth is increasingly being used as a yardstick to measure individual wealth. No, it’s not exactly new, but in the context of today’s Jamaican economy, the notion of net worth is just about beginning to bud in the collective soil of the local investing community. Investment pros use the term in their conversations with media and other types, but generally, there’s precious little being circulated publicly on the topic.
The technical “jargonese” definition of Net Worth is “common stockholders’ equity consisting of common stock, surplus and retained earnings.” Simply put, it’s the difference between your total assets and your total liabilities
Performing a cash-flow analysis for a single year doesn't give you much information about the cumulative impact of those habits on your financial worth. For this you'll need a net-worth statement. It may sound like a difficult chore, but all you're really doing is totaling up what you own and subtracting what you owe.
ADD UP ASSETS
It’s best to start with cash: what you have on hand, what's in your checking account and what you may have squirreled away elsewhere. Next, list money in savings accounts and certificates of deposit. Premium payments on a whole-life insurance policy add to your net worth by increasing the policy's cash value (the amount you'd get if you cashed it in). Your insurance agent or a table in the policy can tell you the current cash value.
Your home is likely to be your biggest asset, so it's especially important that the value you assign to it be accurate. Don't list what it cost you or take a wild guess at its present value. Get a professional valuation and then also check around to find out what similar homes in your area are selling for or have sold for recently. Try to get reliable estimates of the value of any other real estate or business interests you own, too.
Settling on figures to enter, as the current value of your pension and profit-sharing plan is tricky. A program that will provide you with retirement income is surely an important asset, but it's difficult (although by no means impossible) to put a present-day dollar value on income you're supposed to receive in the future. For purposes of this statement, include in your net worth only the amount you could withdraw in cash if you quit your job today. Your personnel office should be able to provide that figure.
The current market value of financial assets such as stocks, bonds and mutual funds is easy to find on recent statements from your funds or broker.
You can get a good idea of what your car is worth by consulting a car-price guide. Of course, you may have some variance between markets, but you could also contact the Auto Dealers Association of Jamaica and the Jamaica Used Car Dealers Association. Banks that make auto loans usually have copies of those guides, as do many public libraries. For other vehicles (including motorcycles, heavy trucks or boats), contact a dealer or check the prices of comparable models in the classified ads.
Ballpark figures will do for the value of household furnishings, appliances and other personal belongings. It's best to be conservative in your estimates. One conservative approach is to “guesstimate” that what's inside your home is worth about 20% to 30% of the value of the home itself. Or make your own item-by-item estimate, and then slash it by 50%. Use estimated market value (not purchase price) of antiques, jewelry, and other valuables.
LOOK AT LIABILITIES
This may seem to be the point where the pain hits, but it shouldn't be difficult. Most liabilities are obvious, and whomever you owe probably reminds you of the debt on a regular basis.
Start with current bills. Next, list the balance due on every credit card and loans. Use a separate line for your car loan and taxes coming due. Again, your home mortgage is probably your largest single liability, and the year-end statement from the lender should show exactly how much you still owe on it.
On other lines, list every debt you can think of because whatever you owe is a liability that diminishes your net worth.
Finally, the bottom line, once you’ve sold all your assets and paid all your debts, what would be left over? That's your net worth.
It's probably not what you'd like it to be. It's possible and even likely that it's a negative number, especially if you're young and just took out a big mortgage on a house and a big loan on a car. But don't worry, because you've just taken the first step toward starting or revising a budget that can show you ways to beef up your assets and trim your liabilities.
So, now you’ve arrived at your net worth position and finding that it’s not what you’d like it to be, the question is what do you do about it? The main wealth building options are savings and investment. Savings accounts are generally thought to be safer as the funds are kept in the account and accrue interest over its lifetime.
Investment involves putting funds into specified instruments – whether stocks or bonds – with variable rates of return depending on a number of external and internal factors.
There are however, other options that allow you to approach having the best of both worlds. Through multi-element plans, like the ScotiaMINT plan, the individual can have the combined benefits of higher rates of interest, potential tax-free benefits and the security of a long-term investment plan. There’s the added benefit of life insurance coverage, automatically approved and with no medical necessary.
The ScotiaMint combined investment-savings plan with insurance offers the individual a systematic and secure way to build real wealth over time. With an initial deposit of 10,000 dollars, and observing the regular monthly premium contribution, the investor can find himself with positive cash value of over six million dollars after 20 years.
By investing the contributions in a diversified portfolio of instruments and through careful monitoring and timely adjustments when called for, Scotia is able to offer up to 22% rate of return on its’ ScotiaMINT plan. This outstrips any rate offered on any regular savings account without compromising the long-term integrity of the accounts.
The best route to real wealth begins with planning. Define your medium and long-term life goals and set down where they can be referred to repeatedly. Once you have that in place, the advice of seasoned professionals, such as those at Scotia will prove invaluable (regardless of how much of a business whiz you think you are presently) in getting to that enviable but eminently attainable point: financial independence, POSITIVE NET WORTH.
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