“Reports are more of a medium of self-discipline than a way to communicate information. Writing the report is important; reading it often is not.”

-Andrew S. Grove

Introduction

I’ve disciplined myself to always take accountability and responsibility on handling my finances. Accumulating the knowledge, honing the skills, applying the two to my life and also to share it to others.

This blog of mine is my way of taking the path of discipline in my finances. A yearly routine of making a personal financial report for documentation purposes and also to encourage everyone to do the same.

For personal and private reasons, I’ll not be sharing any numbers in here, only the percentage based on my total net worth. It’s not and will ever be my intent to brag of what monetary amount I have because I rest assure everyone here that it is not even to be applauded for.

This is not about me anyway, it’s about relaying the message that “Anyone can learn how to handle their money efficiently, to allocate our time, effort and resources based on our personal financial and life goals”,

You know what’s the best thing about it? you don’t need to have an above average nor a stellar IQ to be able to do it. I’m a living example and testament to this – Just the average Juan, doing what he loves to do.

By the way, If you haven’t read my 2021 investment reports yet, I’ll link it down below.

• 2021 Overall Portfolio Performance
• 2021 Col Financial Portfolio Performance
• 2021 Vanguard Portfolio Performance
• 2021 Freetrade Portfolio Performance

Net Worth

You Net worth shows you where you were before, where you are now and where you’ll eventually be.

Net Worth is computed by Subtracting your Total Assets to your total Liabilities.

Net Worth = Assets – Liabilities

It’s a straightforward computation, but the common problem encountered by individuals computing their net worth is knowing what are their Assets and Liabilities. Some persons think that cars are assets (well it can be, but mot of the time it isn’t), while others believe that the home they live in is a liability (which is also valid, but it is still dependent on a lot of things.)

• Home Price Appreciation can be Lucrative, depending on this one factor
• Is the home you live in an Investment?

Let’s just put the definition of Assets & Liabilities in simple terms. An asset is something that has value which appreciates overtime and/or puts money in your pocket as it generates income/cash flow. While Liabilities are anything that takes money out of your pocket, things that consistently costs you money, requiring for you to pay it regularly.

As a guide, I made simple example and template for you.

• Financial Mutant Level of Managing Money – Your Own Net Worth

Always compute your Net Worth in a yearly basis so that you’ll know where were you before and where are you now in your financial journey.

Below is my Net Worth breakdown as per 2022 Fiscal Year end.

Money is a tool that can be used to better our lives. As money managers of our own lives, we must strategically make our money our own employees, let it work for us and give each and every dime of it its job description.

Or in a different point of view. You are the general of your own financial army, either your army respects and follows you, or it has the complete control of you. Your choice.

Cash & Savings Account

1.) Cash – Cash is king, period. It doesn’t matter if you have a lot of money in your various investment account and/or own tangible assets, if you don’t have any cash on hand, then you better be financially wary of Damocles’ sword hanging over your head.

Cash acts as a safety net, it is our financial foundation. You can’t build your own financial fortress if your foundation where you’re standing at is not strong and sturdy.

My Cash allocation are for my Emergency & Rainy-Day Funds. It’s just sitting idle in a bank account with no yield. Its job description is to not do anything at all, up until its services are urgently needed. No notice required, ready in seconds.

2.) Cash in Savings Account – Majority of my cash here is placed in an easy access savings account where it takes 12-24 businesses hours for the transaction (Deposit & Withdrawal) to reflect in my main bank account.

Here lies the cash that I will need in the short-term (more than 6 months to less than 3 years). The Interest on deposit is not commendable as it is only an easy access savings account. This type of account is also called the flexible savings account, where it doesn’t have any lock-in period and has an unlimited number of times for withdrawal and deposit.

The bank I utilize for my savings account is Paragon bank. If you’re curious about it, I’ll link their main website down below.

Savings Accounts | Mortgages | Loans | Paragon Bank

I’ll give you a quick background of my chosen bank for my savings account. Paragon bank is a publicly listed digital bank in the United Kingdom. They operate through two segments: Mortgage Lending and Commercial Lending.

Why did I choose Paragon Bank? Because it is a publicly listed company in the UK.

For most of my readers, they know that I love having a bit of certainty in making my own financial decisions. And one of the ways I do this is by undergoing a background check of a company and see if it is legitimate and trustworthy.

I have checked this banks’ financials and some of its reports. This is easier done when the company is publicly listed, hence why I choose paragon bank.

NOTE: There are other flexible savings account that has a slightly higher AER, but I couldn’t find anything to check the overall business safeness of other digital banks. Therefore, I prefer choosing a bit of a lower yield than other more uncertain options – currently at 1% per annum in their easy access savings account.

Just to add, I recently opened a Cash ISA 1 year fixed term savings account with them. The yield is at 3.60% as of this writing. Here are the list of their offered savings account. Fixed Rate Savings Accounts & Cash ISAs | Paragon Bank

If you’re wondering what is an Individual Savings Account (ISA), you could check my blog link down below.

• UK’s Tax Exempted Individual Savings Account

In summary:

• Always have liquid cash – for emergency (3-12 months worth of your monthly expenses) and rainy-day purposes.
• Savings account – Cash you wouldn’t need for more than 6 months to less than 3 years.
  • Firstly, find a bank savings account provider where you have confidence that would least likely go into bankruptcy.
  • Lastly, a bank that is under an insurance compensation scheme protection for its depositors, in the event of the bank’s failure. In the UK it’s the Financial Services Compensation Scheme (FSCS), in the Philippines it is the Philippine Deposit Insurance Corporation (PDIC) and the US it is the Federal Deposit Insurance Corporation (FDIC). Take note, there is only a certain amount of your money that these compensation schemes will cover.

Investments

Stocks, Mutual Funds, Pension Funds, and Alternative assets. All of these are for my long-term financial goals.

1.) Stocks – I am value investor where I purchase shares of businesses that I understand and where its shares are trading below its intrinsic value.

I do my own research and study on how a company makes money, their business operations, their costs, their margins, how management allocate capital, their plan moving forward to spur further growth and the possible growth of all of its future cash flows, to name a few.

My specific goal for the earnings of my stock investments is for a personal future venture.

I have 2 investment brokerage accounts for my stock investments.

A.) Col Financial Philippines – this is my 1^st broker account since I’ve started investing. It only offers Philippine marketable securities to invest and trade, and they only accept the Philippine Peso currency.

B.) Freetrade – it is a brokerage firm operating in the United Kingdom. It offers stocks and bonds in the UK, US, European shares and Over-The-Counter (OTC). It only accepts the GBP currency. For the US and Euro securities, Freetrade will handle the forex exchange rates themselves, from GBP to USD or GBP to Euro.

2.) Equity Index Mutual Funds – It’s a no brainer decision to invest in a low-cost index fund. It’s as what the old adage says, “If you can’t beat them join them”.

It’s me being self-aware, and accepts the fact that I’ll never be a stellar stock picker myself.

It just so happens that I enjoy the action of finding good and wonderful companies to understand and are trading at a reasonable price relative to its potential future cash flows, hence why I still allocate a portion of my net worth in my value investing portfolio.

I hope I will be able to reach a Buffett, Munger, Icahn, and Lynch level of long-term compounded annual growth returns, but I am still realistic to the fact that It would not be that easy for me to do so. Hence, my index fund investment allocation.

We’ll never go wrong in investing religiously for a long time in a low-cost index fund.

I’ll let the John C. Bogle “The Father of Index Investing”, through his quotes, explain why Low-Cost Index Funds are a no brainer investment for everyone.

I only have one account for this, and it’s under Vanguard UK. I’ve made a couple of blogs discussing it. I’ll link it down below.

Same as with my Stock portfolio, my invested money in my Equity Index Mutual Fund account also has its own specific purpose in my life.

• How to open an Index Fund Investment Account – Vanguard
• Vanguard UK – The FTSE Global All Cap Index Fund
• Vanguard UK’s Ready-Made-Portfolios

3.) Pension – Retirement is not the end of the road. It is the beginning of the open highway. And I certainly would love to have a retirement life that will be an open highway than of the end of the road.

I have 2 retirement accounts.

A.) Self Invested Personal Pension (SIPP) Account under Vanguard. This UK account resembles the 401k of the US, RRSP of Canada, and PERA of the Philippines, which are all for retirement purposes. My allocated money in is invested in an low-cost index fund.

B.) National Employment Savings Trust (NEST) pension. This is an employer opened account for their employees – mostly in the private sector.

So what is NEST? It’s better if NEST management themselves will explain what it is.

I know some individuals don’t include their own retirement accounts in their net worth, but personally I add mine. The reason is, because it’s still an amount of money that I have contributed based from my own earnings. Plus, it is quantifiable because I have direct access with both of my retirement accounts. I can view how much I have contributed and the gains/losses that it has generated since inception of the account.

Other persons don’t add theirs because they don’t have the information for some of their retirement accounts. One of the best examples for this is our national pensions, the SSS.

The pros of having these retirement accounts are the following.

• All capital gains and dividend gains inside the account are tax exempted. This is one of the legal ways to get away from the taxman. 😂
• The government adds 25% on top the capital I invest.
  For example:
  • Invested Money = £1,000
  • 25% add on = £250
  • Total Capital to be invested = £1,250
• The employer also chips in a percentage amount of my invested capital. (NEST does this. With SIPP accounts, not all employers add money).

There are also disadvantages, such as a specific lock-in period before we can withdraw the money, which is based on age (e.g. 55, 60 or 67 years-old depending on a specific retirement account)

My goal for the money I’ve invested here is as clear as day, for my retirement life.

Maximize the power of such accounts, if there’s one available in your country, grab the opportunity.

4.) Alternative Investments – I would love to say that I’ve started to allocate a portion of my net worth in this alternative asset class for diversification purposes. But to tell you honestly, it isn’t my primary reason. I started this due to my curiosity in this space.

You see there are a lot of alternative asset investments around the world, such as wine, fine art, jewelleries, rare coins and luxury watches. And some of it piqued my interest. I have various questions in my mind, like how come some of these material things – that doesn’t even produce any cash flow in the first place – appreciate in value over time? Then I pursued the ones where I am willing to understand for a long-time.

A.) Cryptocurrency – I used Binance to purchase cryptocurrency coins that I understand. Nonetheless, I don’t leave my purchased coins in my Binance hot wallet, I transfer it instead to my own cold wallet for safety purposes.

• How to Protect our Digital Assets as a Cryptocurrency Investor

B.) LEGO – Yep, you read it right. I purchase LEGO sets for investment purposes. I know some persons will be surprised, feel weird about it and laugh because of the absurdity of treating it as an investment. After all, LEGO sets are just made of formed plastic pieces, that’s it. And, I absolutely agree with that point, but then again the LEGO secondary market doesn’t agree with what other think of it.

It’s more than a plastic, it’s about children, and the ones children who are adults now. It’s about the heritage of LEGO, the creativity and experience of building one. Its uniqueness confined to a group of individuals who understand this specific niche.

The market doesn’t tell lies, but it sometimes takes you to both extremes. The exuberant (Yahoo! the is investment that will make me rich!) and the depressive (This investment is the worse! it is a scam! it will cease to exist!). This is the reason why every investor must also understand the market of their chosen investment.

C.) LW – Let’s just say that I’m eyeing to invest in this specific item as an alternative asset. Though I don’t have the capital yet that will help me to purchase one, I’m still willing to wait for that time to happen, even if it takes years or a decade. As of the moment, the capital I allocate in this space is currently invested in stocks via a Trading212 account. Trading212 is one of Freetrade’s online brokerage account competitors in the UK.

Investment Breakdown Summary – Links for the brokers and bank accounts used are included

CASH	INVESTMENTS
Cash	Stocks 1.) Col Financial 2.) Freetrade
Cash in Savings Account – Paragon Bank	Index Mutual Fund – Vanguard
	Pension 1.) Vanguard 2.) NEST
	Alternative Investments 1.) Cryptocurrency – Binance -> Trezor Cold Wallet 2.) LEGO 3.) LW – Trading212

Liquidity Levels

I always see to it to make a pie breakdown showing the liquidity percentage of my total net worth. Why? because I want to know if I’m safely allocating my capital based on how easily I can produce cash if the need arises. Luckily the need for me to use my liquid cash hasn’t happened yet.

For this year, I am happy to see that my mostly liquid cash (Cash & Cash Savings Accounts) are at 12% of my Net Worth. I aim to have approximately 8-15% of my overall net worth.

The other two (Fairly Liquid & Least Liquid) are relative to a person’s circumstances. Let me explain.

For persons who prefer properties as their main focus for investments, I would not be surprised to know that majority of their net worth are in the least liquid asset spectrum. You can’t easily liquidate a real estate within a month, what more in a day.

In addition, I would also most likely expect to see a large allocation on cash and cash equivalent (mostly liquid) on their net worth, due to the probable maintenance expenses they would need to shell out for their rental properties.

Net Worth Year-on-Year Change

I always compare the difference from the current year to the previous year’s net worth change. It’s my way to monitor for any improvement in my net worth.

Let’s say for example your net worth for Fiscal Year 2022 is $10,000. While your 2021 Net worth was $7,000.

• Your Year-on-Year Net Worth Change (YOY NWC) would then be:
  • YoY NWC = (NW this year – NW Last Year) / NW Last Year
  • YoY NWC = ($10,000 – $7,000) / $7,000
  • YoY NWC = 42.86%

It indicates that your Net worth increased by 42.86% from 2021 to 2022.

For you to be able to make one, you’ll need to religiously track your net worth.

NOTE: My computed net worth doesn’t take into account my dividend gains and capital gains/losses. I’ll show my investment portfolio gains/losses for the continuation of this blog.

Income & Expenses

“Focus on all four of your net worth factors; increasing your income, increasing your savings, increasing your investment returns, and decreasing your cost of living by simplifying your lifestyle.”

T. Harv Eker

This is what I call the firing in all cylinders method. Personally, the hardest part here is increasing our income. Thought there are a lot of ways to do it, but not all will be applicable for each and one of us, because of factors such as time, effort, individual circumstances, and most especially the individual human psychological and emotional aspects relating to it.

But it doesn’t meant that it is impossible for us to break these barriers.

Below is my historical yearly total Income and Expenses (bar graph), including my Expenses to Income Ratio (line graph).

The expense-to-income ratio conveys what percentage of our net income was used for our expenses (both needs & wants) within a given period in time – in the line/bar graph’s case, it is in a yearly basis.

I’m more of an efficiency guy (Saving more, Investing wisely and a controlled and/or no lifestyle inflation), than of the increasing income type, approximately 80%/20%.

It’s completely worth it to tally things up and make our gathered data into a chart as it shows our performance since we’ve started tracking our income, net worth and cash flow. It also gives us a view and insight on where we could improve more in our financial strategy to achieving our own financial goals.

To Sum It Up

“The best value investment of all is channelling money into goals that will make your life more valuable; drawing your innate gifts to make yourself matter to other people and make the world around you a better place. Given the way the brain works your happiness ultimately depends not on finding out how much you can buy on learning how much you can be.”

-Jason Zweig, Your Money and Your Brain

Your own Net Worth and Income shouldn’t be a ticket for your own bragging concert. It doesn’t reflect how rich you are nor how poor you are, because there is always someone who has way more or way less than you. The Net Worth and income competition of who has more and who has less are just a hedonic treadmill that doesn’t hold any true value in one’s life in the long run.

Instead have a frame of mind that your own net worth shows your willingness to achieve what you want in your life, your purpose, and how you want to live it and not based on what others think how you should go about your own life.

Build your net worth NOT for the sake of making more money, but for a GREATER PURPOSE than money itself.

Build to help, Advice to help, Advocate to help, Preach to help.

“Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.”

– Franklin D. Roosevelt

In my next blog I’ll be sharing the specific breakdown of my investment allocation based on the three broker accounts that I have: Col Financial, Vanguard and Freetrade.

NEXT BLOG – ELMads 2022 Investment Portfolio Performance >>>

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.