Why should you update your balance sheet every year (and discuss it with your financial planner)

-By Sunél Veldtman

 

Over the years, I have learnt a lot from my clients, many of whom are successful business people and entrepreneurs. One such useful practice was to update one’s balance sheet every year.

A balance sheet is simply a list of what you own (assets) and what you owe (liabilities). The former should ideally outweigh the latter!

 

What to take into account?

You should include the obvious such as your primary residence, other properties, vehicles, your investments and policies. It is easy to forget some assets (and some liabilities!). Less obvious assets are loans outstanding to your family trust, your company or family members, and your interests in businesses. Also, remember your retirement assets – especially your employer’s pension fund.

However, remember that family trust assets do not form part of your assets.

 

How will it help you?

  • Your balance sheet will highlight growth (or the lack of it) and will fill you with a sense of achievement and gratitude or spur you on to work on your financial goals;
  • Review each asset and liability. What is the purpose of the asset in your life? Do you still need that share in a weekend home that you never use? Do you still need the life policy now that your kids are independent? Should you not pay off that loan or renegotiate the terms?
  • Update your insurance schedules. You can save money by insuring lower vehicle values. On the other hand, your home value may have to be increased.
  • Your tax consultant might need it to submit with your tax return. You will also need to submit a balance sheet when you apply for an annual foreign currency discretionary allowance to take funds out of the country.
  • You can keep track of your separate or joint estates as spouses. If you are married out of community of property (without the accrual) and one spouse is financially dependent on the other, it is important that you discuss how the assets are split. If you are married with the accrual, it is easier to track the accrual. This becomes critical information not only at divorce but also at death.
  • Talk to your financial planner about changes in your balance sheet. It may affect your financial plan.
  • Update your will if necessary to reflect big changes in your balance sheet. From time to time, especially if you have assets in excess of R3.5 million, calculate the estate duty that will be due at your death to see if there will be enough cash in your estate. Your financial planner can help with this calculation.
  • Send it to your executor or let them know where to find it so that it will be easier to wind up your estate (one day) and less stressful for your family.

 

Adopting a discipline like this, can be one of the best financial decisions you make. Make the time, it will be worth it.

At Foundation Family Wealth, we aim for holistic advice. Taking a client’s entire balance sheet into account leads to personalised and appropriate advice. We encourage our clients to update their balance sheets regularly and we like to discuss the implications of the changes to their financial plans.

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