My Financial Profile – Asset Weighting



Welcome back! So far you have completed your Income and Expenditure and Balance Sheet. Now it’s time for the last part, Asset Weighting.

Take a look at the last tab of My Financial Profile. It’s not as confusing as it may look. The percentages in the left-hand column are simply a guide. This is what I would recommend as a good balance between fixed, medium term and current assets.

You will see that the recommendation is for 10-20% in net fixed assets. For most people, this is held in their own home, and it’s not possible to sell half a house if you suddenly need some liquidity. If you have expertise in property and want to hold more than 20% in net fixed assets, particularly if it’s generating you a nice income, that’s perfectly fine. The 10-20% is just a guide.

I have also indicated 10-20% as the recommended weighting to current assets. What we are really talking about here is your Emergency Cash Reserve. (see here if you need a reminder what this is) We are currently in a low-interest rate environment, and I don’t see great benefit in holding lots of cash, particularly if you live in Japan, where interest on bank deposits is near zero. One reason you may hold a larger weighting of cash is if you are saving for a deposit on a home. This money is really just waiting to be moved to the net fixed assets part of your balance sheet.

This leaves 60-80% in medium term assets, which is anything you are saving and investing for your future. It’s quite rare that I meet people who already have this weighting in medium term assets. If you are just getting started then it may in fact be very low. Even people on high incomes are often highly concentrated in cash and their own home.

So now it’s time to input the numbers from your balance sheet. Under Asset Weighting, Amount, in the third column, enter the totals from your balance sheet for Net Fixed, Medium-term and current assets. Circle whether you already have your Emergency Cash Reserve covered. (Y/N)

Now you can total your Net Worth. Hopefully you like the number you see here, but remember it’s a work in progress.

Now it’s simple to work out your current weightings as a percentage in column four. If you have $200,000 in fixed assets and your total net worth is $1,000,000, then your fixed asset weighting is 20%. (200,000 ÷ 1,000,000 x 100)

So how does your asset weighting look? Is it close to the guide in the left hand column? Are you heavily overweight in a particular area? If so, then the Target Weighting in column five is your action plan. Here you can input the way you want it to look.

For example if your current weighting looks like this:

  • Fixed assets – 10%
  • Medium-term – 10%
  • Current – 80%

Then perhaps you need to adjust your target weighting to:

  • Fixed assets – 10%
  • Medium-term – 70%
  • Current – 20%

This means you need to invest some money! There are two ways to do this: obviously you can take money from your current assets and invest it to balance things out. You can also take money from your monthly surplus over expenditure and invest that every month.

The lower box will help you to determine where your current disposable cash flow goes each month. In the left-hand box, insert your monthly / annual net disposable income. This is the last number on the income and expenditure page. Now you can examine where this money actually goes every month. Is part of it making extra payments on your mortgage? In that case it’s going into net fixed assets. Does it just go into your bank account and sit there? That would explain how you got to be overweight in cash!

It’s surprising how many people I meet where their disposable income flows 100% into current assets. I would encourage these people to consider investing on a monthly basis – the column for Future Amount is where they can decide how much to contribute each month.

As a general guide, the maximum amount I think you should contribute to medium term assets from your monthly surplus is 50%. Simply put, if you are saving $2,000 a month, and it’s all going into cash, then you can consider investing up to $1,000 per month into medium term assets. Any more than that and you may run into trouble if suddenly hit with an unexpected expense, or drop in disposable income.

Hopefully this is all clear and you have completed your asset weighting and understood what changes you need to make. Please let me know if you get stuck!




My Financial Profile – Balance Sheet


The next step in building your financial profile is to complete your personal balance sheet. This consists of a combination of fixed assets, medium term assets, and current assets. You can find it on My Financial Profile.

Let’s start with the first tab for fixed assets. What we mean here is usually property, although anything that is illiquid (difficult to sell in a hurry) is classed as a fixed asset. This could include investments in unlisted companies, otherwise known as private equity.

If you own your own home and live in it, then record the details under principal residence. If you aren’t able to fill in every box that’s ok, but you really need to come up with a current value. If you haven’t had your home valued recently then this may not be so easy. You may find you need to estimate based on what similar homes in your area have sold for. If you have bought your own place recently, or simply cannot come up with an estimated value, then use the purchase price as today’s value.

If you are lucky enough to own a property / properties that you rent out, then record these under investment properties. Remember that the rental income you receive should also be recorded on your income and expenditure sheet.

You will note that the form asks for a value in base currency. Please refer to the post here to find out what your base currency should be.

Ok let’s move on to medium term assets. These are generally investments for your future and may differ in holding time. The first part is for retirement schemes. If you are paying into the Japan national pension, it may not be so easy to get a current balance, but it is possible. Your company HR department can likely assist, or you can go to your local pension office and request one. You probably actually get a statement by post from time to time, but you may not pay attention to it. If you are really stuck then estimate based on what you contribute each month and how long you have been paying in.

There’s some useful information on the Japan National Pension System here.

If you have a company retirement scheme, or a personal one, make sure you record those here too. If you have worked in other countries, it’s possible you have pension assets in those countries. Make sure you are not forgetting anything. Request a statement and get a balance.

The next part is for non-pension regular investment. Do you pay into a monthly savings / investment plan where you are building up savings for the future? If so include them here. (if you are just saving in the bank, that goes under current assets)

The other assets box is just that – if it’s not cash, property, or a regular contribution scheme, it goes under other assets. This could include stocks, stock options, bonds, lump sum investments into mutual funds etc. If you’re not sure where to put something, put it here and remember to get a balance.

Lastly we have current assets. This is basically cash in the bank, or at home. If you have multiple accounts then this is a good time to figure out how much is in each of them and consolidate it into a final balance. I would include term deposits with the bank here too. Some people put anything with more than a one year maturity in medium term assets, which is fine, but cash deposits are generally easily broken if you need to access the money, so I put them in current assets.

Hopefully your balance sheet is taking shape and you have a total for fixed, medium term and current assets. You will need this when we do your asset weighting. Before that though, just go back through each section of the balance sheet and ask yourself if there’s anything else you have forgotten to include on here. Is there an old post office account that you opened years ago lurking somewhere?

Once you’ve done a final check, that concludes your balance sheet!

My Financial Profile – Income and Expenditure


If you meet with a financial adviser, the first thing they will do is take you through a fact-finding process to understand your current financial position. This financial profile then forms the basis for advice.

Today you can begin work on your own financial profile, starting with income and expenditure. It’s up to you how you record this. You can simply write it on a piece of paper, make your own spreadsheet, or use the handy Financial Profile I have created here: My Financial Profile

Some of you may already know exactly what your monthly income and outgoings are. Maybe you are recording them already, in which case, well done! Some people may have a general idea but have never actually looked at the numbers in detail. And then there are the “I don’t know where it all goes” people – this is for you guys especially!

Start by opening the first tab of the Financial Profile – Income and Expenditure. If it’s your first time doing this you may prefer to record the figures on a monthly rather than an annual basis. The top part is for income.  If you have a regular job and tax / insurance / pension contributions are deducted at source, you may find it easier to simply record your net earned income – the amount that actually gets paid into your account every month. If you are self employed and/or have income from multiple sources you may find it easier to record your gross income. If your income fluctuates you may want to look back over the last three years and work out an average number.

If you have income from sources other than work, such as rental or investment income, then record those too and total it all up. If you have a partner who also has income, record that too.

Now for the fun part! Figuring out all the things you spend money on every month. Some organised people might be keeping receipts and records already. If you belong in the “I don’t know where it all goes” group, you may actually need to spend a couple of months gathering receipts and keeping track of your spending. A friend of mine recommended the Spending Tracker App. However you do it, try to record everything you spend over the course of an average month. If you have to estimate some items, that’s fine.

What we are really looking for is a number in the box at the bottom, indicating your monthly surplus over expenditure, or disposable income. Simply put, it’s the money that’s left over at the end of the month. Knowing this number helps us understand later how much of our savings we should be allocating to longer term investments each month. Total income minus total expenditure gives you your disposable income.

If you find that you have more month left over at the end of the money, then the first thing you need to do is look for things that you can cut from your expenditure list. Remember the goal here is to spend less than you earn so you have money left over to save for the future.

So hopefully you have been able to work out your monthly surplus over expenditure. Let me know if you have any trouble with this.