Is your bank book your financial statement?

Christine was in my office today. She picked up our bankbook and was looking at it. Of course, she wanted to know how much was in the bank. That’s when I realized how many people just look at their bankbook or their account statement to figure out their financial situation. This is perhaps at best an inadequate view of your financial accounts or at worst downright erroneous. Why?

In today’s food for thought article, I’m going to answer why in several ways and explore an easy way to find out a better picture of your current financial health. But first, why is it inaccurate?

Assets: Or how to cover yours!

In short, the money that is present in the bankbook isn’t necessarily the money you actually have. It doesn’t take into account money that you may have in other places: your house, your insurance policy, your investment accounts, your savings accounts, your piggy banks, or wherever there could be a store of value. In other words, your bankbook as personal financial statement may seriously underestimate the actual worth of your holdings, ie. your assets.

In order for you to work out your total assets (the total amount of money or ‘value’ that you have stored up), you will need to consult numerous documents: in fact, for my own personal financial statement, I need to consult about fifteen or so individual accounts or statements to find out this value.

For the first time, simply collate all the accounts together that you need to use. Then divide them into assets (money you have) and liabilities (money you owe). Let’s deal with the assets first.

List each item in a spreadsheet and its value. Here is an example from my notes with all numbers in NT$ (not US$!).

assets exampe

It’s not perfect, but shows you how you could do. Simply add up the total to arrive at a value of your net assets. You need to be conservative on this figure if there’s uncertainty anywhere. Typical uncertainty may lie in insurance policies (where payouts might be less!), value of jewelry or expensive items, etc. Always try to use a conservative number, such as the least you could get.

Liabilities: You’re still on the hook

The same listing technique can be used as above but for your liabilities. Remember: liabilities are the money that you OWE to other people. Typical examples include: mortgages, credit card debt, car loans, student loans, etc.. If there is any uncertainty about amounts, you should always use the more aggressive (or larger) amounts to remove any risk of misjudging how much you have.

So dig out all your current payment statements, and list them as above. It might be a good idea if you have multiple sources to sort them into three categories: house and car loans, credit cards, and personal loans. That way you will have a better idea where the largest amounts of money are. (You may also wish to see what the current APR is on these deals!).

Networth is easy: Assets Minus Liabilities

Now you can figure out your networth with this easy formula. And the answer is easy: if your networth is positive, things are looking up. You’re actually creating your own wealth. If your networth is negative, then you need to be looking at the source of your liabilities: where are you spending? Both categories should be encouraging you to increase your assets. That’s how debts are erased.

Example A: A mid-30’s couple has US$145,000 in assets (from a house, car, savings and pensions) but their liabilities are also big with $130,000 (from a mortgage, car loan, outstanding loan payments, credit card debt, and student loans). Therefore, their net worth is currently $15,000.

Example B: A single young lady aged, 29 has only US$4,500 in the bank (no house, no pension plan, no investments) but she has credit card and personal loans of $7,500 outstanding. Her networth is $-3,000 or negative $3,000. In other words, her lifestyle is consuming more and more of her salary. If she’s not careful, more and more of the regular payments will be to pay off interest charges.

I’ve been calculating my networth for more than 15 years now, and it has really helped to clarify our own financial decisions. I don’t do it very often as things don’t change that much, typically every quarter or even six months now is fine. But when you start out, you may want to do it more often to get a sense of the direction the networth is going.

Do let me know if I missed anything. How do you calculate your networth?

NetLoans.co.uk: Polished, Pretty and (a little) imPersonal

The world of online lending gets more and more crowded every day as new entrants to the market increasingly raise the bar of what is expected from an online lending site. The latest review from InvestorBlogger is for a company called NetLoans whose tag line is “Homeowner loans lowest ever rates on our any purpose secured loans!” NetLoans provides access to a variety of secured loans for home purchases, debt consolidation loans, bridging finance, and so on.

netloans front

First Impressions: Polished, Bold and Web 2.0!

So, despite the slightly garbled tag line, the first impressions of the site are very pleasing indeed. The design of the website is clearly laid out: tabs along the top; interactive loan calculator right on the page, right hand sidebar, latest news headlines, and easy to find contact information.

It’s obvious from the first few clicks that a lot of thought has gone into the design and usability of the site from the users’ point of view so that users can find usable information from the moment they log on to the site. Unlike many similar sites, this quality would tend to make the site much ‘stickier’ than other sites in the same category.

The bold graphics, interactive forms, and fresh news feeds help to create the feel that this is a website designed for Web 2.0 though there are some obvious limitations in how far the model has been pushed. I did find it possible to get quite informative responses to some standard questions that I had.

The plus points on the site design are so many it’s difficult to know where to start: but I’ll highlight five that stand out to me as an outsider.

Loan Calculators: Interactive and Practical

It’s difficult to imagine why many loan websites do NOT include these calculators at least some where on the website. What is more surprising is the bold decision to put the loan calculator right on the front page. As if that weren’t bold enough, there are two tweaks that make it even better: there are three grades –good, fair, and poor– of credit scores that (while not particularly precise) can help potential customers evaluate the kinds of payments they might be making.

netloans credit ratings

Surprisingly, instead of just being requested to fill in details about your loan request, you can actually get some rule of thumb ideas about costs, options, and loan profiles BEFORE you commit to applying. In addition, you can (usually) get a choice of lenders as well by choosing different variables, credit rating, amount of loan, and loan period. The results automatically appear listed below. In fact, there are additional calculators in one of the other pages that can be used to calculate a debt consolidation loan. This interactive calculator is perhaps that appeals to me the most, because it can really help shape my thinking about the kind of loan that I would need, how much I can afford to borrow, and what terms are available. This alone is perhaps the best feature of the site.

Meeting Prospective Customers’ Leads: FAQs, Contacts, News, and an Affiliate Program.

Many such websites provide the barest minimum of help hoping that visitors to the website will simply pick up the phone and call the 0800 number or hit ‘apply’ or ’email me’, not realizing that many visitors are simply browsing for information at first to find out what loans and options there are, how much they cost, and which companies are better at serving their customers. NetLoans aims to reach such customers by providing regularly updated news feeds, helpful FAQs, useful calculators, recent news and a glossary of terms .

sample feed netloans

(This image of a sample feed shows some of the stories that have been recently published on the feed.)

Additionally, customer contact details are available all over the place, including contact phone numbers, email, a physical address with a map, about the only thing that is missing is a “Live Contact” box that allows potential customers to contact you from the website page (I’ve used it several times, and it’s very effective on some sites!).

Last, but not least for Webmasters, there is an affiliate program that is available. I’ve signed up for the program, and may end up using it on my own website here. The promised pay out is GBP250 per applicant (which is a lot of money with the current USD in the toilet situation!). This could be an attractive way for Financial Bloggers to adapt and extend the features of the website within their own e-finance website.

netloans affiliate

And the catch…

So, what is the catch? Well, and this is a highly personal opinion, that such very web 2.0 sites miss out on one very important aspect of the web in 2008 – that of creating community and interaction between real people.

While it is apparent that the website is intended to be a e-commerce website, the lack of a personal element – a voice, as it were – doesn’t help to brand the site as customer-friendly. It would be great if there could be a personal voice that highlighted how the loans REALLY benefit customers, especially if that were written in direct and honest manner. While the word ‘testimonials’ comes to mind, I’m thinking much more of examples and entries of how the loan officers made a difference in customers’ lives. This would be best served in a real blog style format where communication and community could be brought together. That combined with photographs, videos, and other tools of the modern ‘blog’ could really draw additional traffic to the website and generate the feel of a real blog.

Other Suggestions

I think it would be a good idea to include a TOS (Terms of Service) and a Spam Policy, both of which would help to increase customer confidence and assurance that the company is serious about its business. Also, it would be great if there was a functional search box, accessible from every page, so users could enter key words and find the information they are looking for, not just what the webmasters want them to know. These are minor suggestions, but would help cement what is otherwise an excellent website.

Disclaimer: While this review has been paid for by NetLoans, the viewpoints expressed here are entirely my own. If you would like a review of a website, please contact me for more information.

Are you a credit card slave? Part 4

In this series, I’m looking at our changing attitudes to money, and answer the simple question: are we all credit card slaves now? Part 1 was entitled Where did our attitudes to money come from?. Part 2 is Credit Cards, Bank Accounts and Salaries. Part 3 was The Credit Card Cascade and the Madness of Spending. This is the fourth installment in this week’s series.

What is a credit card slave?

In Taiwan, a few years ago, many banks started promoting a new form of credit loan that was a cross between a credit card and a traditional bank loan. After being approved, consumers were issued with ATM cards that could be used to withdraw cash at machines around the world; of course, the ATMs attracted fees, and the interest rates were high. Slowly, the banks pitches become more and more aggressive and the advertisements more and more outrageous. One bank called in Chinese ‘Wan Tai Bank’ or Cosmos Bank ran such a successful ad campaign that they become almost a household name in Taiwan. The cards were called George and Mary…

g&m

But many borrowers were unable to pay back the loans they had made, and the interest rates (now regulated) stood at more than 18% apr. Prior to regulation, rates had been much higher, and newspapers reported many stories of individuals and families killing themselves and their offspring as a result of their debts. There are quite a few stories in the Taipei Times about this issue:

In fact, an article last year cited over 3,000,000 credit card slaves (about 1 in 8 of the population!), and more than 400,000 Taiwanese have been declared bankrupt because they are unable to clear their credit card debts. (cited: The Asian Pacific Post Newspaper)

Slavery is defined by Wikipedia as: “Slavery is a social-economic system under which certain persons — known as slaves — are deprived of personal freedom and compelled to perform labour or services. “

While the definition is rather narrower than would warrant, it is possible to characterize credit card debt as a form of slavery, simply because the high interest rates deprive customers of their personal freedom as they struggle to pay off their debts.

To some ‘credit card slaves’, it seems they are indentured to the financing companies, and some financing companies don’t hesitate to employ less than orthodox means to ensure repayment. However, to suggest that credit card debt is a form of slavery is to underestimate one important factor: it is the borrower who incurred this debt, in the first place. The compounding factor of course is the high level of interest and penalties that are imposed subsequently on the borrower.

While this may depress many creditors who stare at the pile of mounting debts, this thought should encourage because if it’s something that was done by you, then it can be fixed, too, no matter the scale of the challenge.