The document discusses net worth and how to calculate it. Net worth is calculated as total assets minus total liabilities. Assets are divided into liquid, semi-liquid, and non-liquid categories. Liabilities are divided into short-term and long-term debts. The document provides an example of calculating an individual's net worth and debt-to-equity ratio. It recommends strategies for increasing net worth such as higher investment returns, reducing debt, and saving more regularly.

1. How much are
you worth?
(Net Worth)
Money Suit by flickr user zoomar

2. The Dirksons Additional Costs to Purchase Their Home
HOMEWORK
The Dirksons live in Brandon and bought a house in Portage.
They had the home appraised and paid $125.00 to have it done.
The bank required a survey, and the cost of the survay was
$300.00. the price of the home was $135 000.00, and since their
down payment of $20 000.00 was less than 25% of the total
price, they had to buy “High Ratio Mortgage Insurance” at a cost
of 1.25% of the mortgage. The home insurance premium was
$475.00 but they recieved a $150.00 rebate from the policy they
had on their home in Brandon. The property taxes for the year
had been paid by the previous owner, and so they owed 7
months of the total tax bill of $2 125.00. A dry-walling bill of
$650.00 was split equally between themselves and the former
owner. The Dirksons bought a used washer and dryer for
$920.00. Moving expenses were $320.00 and legal fees that
included the land transfer costs were $965.00.

3. The Dirksons live in Brandon and bought a house in Portage.
They had the home appraised and paid $125.00 to have it done.
The bank required a survey, and the cost of the survay was
$300.00. the price of the home was $135 000.00, and since their
down payment of $20 000.00 was less than 25% of the total
price, they had to buy “High Ratio Mortgage Insurance” at a cost
of 1.25% of the mortgage. The home insurance premium was
$475.00 but they recieved a $150.00 rebate from the policy they
had on their home in Brandon. The property taxes for the year
had been paid by the previous owner, and so they owed 7
months of the total tax bill of $2 125.00. A dry-walling bill of
$650.00 was split equally between themselves and the former
owner.

4. The Dirksons Additional Costs to Purchase Their Home
The total additional costs are $5 957.08, or approximately $6 000.
If they do not have enough money set aside to cover these expenses,
they might be able to add these costs into their mortgage.

5. Buying vrs. Renting

6. Do you know your Net Worth?
http://tinyurl.com/4x8exe
Assets Liabilities

7. The Meaning of Net Worth
Net Worth is the difference between your assets and your
liabilities. The term assets refers to the value of everything you
own, including any cash or bank deposits, material goods, and
investments. A liability is any debt you need to pay.
Net worth = Assets - Liabilities
Equity is the same as net worth. Note that
equity and 'total assets' are not the same
and quot;Home Equityquot; is something different.

8. Assets
When completing a Net Worth Statement, it is useful to subdivide
the assets into three categories:

9. Assets
When completing a Net Worth Statement, it is useful to subdivide
the assets into three categories:
1. Liquid Assets: These include cash accounts (i.e., your
chequing and savings accounts), T-bills, money market funds --
any money you can get at quickly and without penalty. This is
money available in case of emergency, and also in case of
investment opportunities.

10. Assets
When completing a Net Worth Statement, it is useful to subdivide
the assets into three categories:
1. Liquid Assets: These include cash accounts (i.e., your
chequing and savings accounts), T-bills, money market funds --
any money you can get at quickly and without penalty. This is
money available in case of emergency, and also in case of
investment opportunities.
2. Semi-Liquid Assets: These include longer-term investments
such as stocks, bonds, mutual funds, RRSPs, or real estate.
These investments are intended to provide for major future
needs such as purchasing a house or retirement.

11. Assets
When completing a Net Worth Statement, it is useful to subdivide
the assets into three categories:
1. Liquid Assets: These include cash accounts (i.e., your
chequing and savings accounts), T-bills, money market funds --
any money you can get at quickly and without penalty. This is
money available in case of emergency, and also in case of
investment opportunities.
2. Semi-Liquid Assets: These include longer-term investments
such as stocks, bonds, mutual funds, RRSPs, or real estate.
These investments are intended to provide for major future
needs such as purchasing a house or retirement.
3. Non-Liquid Assets: These include material goods such as
your house, car, computer, and other personal property. These
items are intended for your long-term personal use, and are not
easily converted to cash.

12. Liabilities
Liabilities are divided into two types:

13. Liabilities
Liabilities are divided into two types:
1. Short-Term Debts: These are debts that must be paid within
the next 12 months. These include credit card debts, consumer
loans, and smaller personal debts.

14. Liabilities
Liabilities are divided into two types:
1. Short-Term Debts: These are debts that must be paid within
the next 12 months. These include credit card debts, consumer
loans, and smaller personal debts.
2. Long-Term Debts: These are used for two purposes:
• to pay for investments such as real estate, including your home
• to pay for major purchases such as a summer cottage, motor home,
or car

15. The Meaning of Net Worth
Net Worth is the difference between your assets and your
liabilities. The term assets refers to the value of everything you
own, including any cash or bank deposits, material goods, and
investments. A liability is any debt you need to pay.
Net worth = Assets - Liabilities
Equity is the same as net worth. Note that
equity and 'total assets' are not the same.

16. http://tinyurl.com/4x8exe

17. http://tinyurl.com/4x8exe
Includes
Mortgage
Does Not Include
Mortgage
Total Liabilities - Mortgage
Debt/Equity Ratio =
Net Worth

18. The Debt/Equity Ratio
The debt/equity ratio shows how your debts compare with your
net worth. A debt/equity ratio of 0.40 would indicate that the
value of all the debts is 40% of one's net worth. A person's or
family's debt/equity ratio should not exceed 50%.
The debt mentioned above includes all short-term and long-term
debts except the mortgage on your home. Therefore, the formula
for the debt/equity ratio is:
Total Liabilities - Mortgage
Debt/Equity Ratio =
Net Worth

19. Net Worth Problem
Mona would like to do some extensive house renovations, but
she decided to calculate her net worth and debt/equity ratio
before applying for a loan. The following information was used in
her calculations.
• Her house is valued at $93,000, and she still has a $62,000
mortgage against the house.
• She has $4600 in a bank savings account, and she has invested
$21 500 in mutual funds.
• Her car is valued at $16,000, and she still has a two-year loan for
$9600 against it.
• She has a life insurance policy with a cash surrender value (near
cash) of $5300.
• She has RRSPs worth $9450, and owns Canada Savings Bonds
valued at $1800.
• Her credit card debt is $2554, and she has a $3015 consumer
loan (for furniture) payable in the next six months.

20. Mona's financial situation looks good, because her debt/equity
ratio is 0.20, or 20%. How would this change if she made a bank
loan for $15,000? Should she apply for the loan?

21. Note that the loan would raise Mona's debt/equity ratio to 0.51, or
51%. Maybe she should postpone the renovations and save
some money first, or reduce the cost of the renovations.
It is also interesting to
note that if Mona were
to take the money
from her mutual funds
instead of making a
loan, her debt/equity
ratio would rise to
about 0.26, or 26%.
(This calculation has
not been shown.)

22. How to Increase Net Worth
The following three strategies to raise one's net worth are often
recommended by financial planners.

23. How to Increase Net Worth
The following three strategies to raise one's net worth are often
recommended by financial planners.
1. Get a higher rate of return on your investments. You need to
exercise caution here, because investments with higher rates of
return are often more risky, and there may be a greater chance of
losing money.

24. How to Increase Net Worth
The following three strategies to raise one's net worth are often
recommended by financial planners.
1. Get a higher rate of return on your investments. You need to
exercise caution here, because investments with higher rates of
return are often more risky, and there may be a greater chance of
losing money.
2. Reduce your debt. Most consumers can reduce their debts --
especially consumer debts -- by planning and following a budget.

25. How to Increase Net Worth
The following three strategies to raise one's net worth are often
recommended by financial planners.
1. Get a higher rate of return on your investments. You need to
exercise caution here, because investments with higher rates of
return are often more risky, and there may be a greater chance of
losing money.
2. Reduce your debt. Most consumers can reduce their debts --
especially consumer debts -- by planning and following a budget.
3. Save more on a regular basis. Most financial advisors believe
that this is the primary key to building wealth. The advice in
Senior 3 Applied Mathematics was to save 10% of your income to
'pay yourself first.' This means save before you spend, not save if
you have anything left after spending.

26. Dave, age 30 and single, is concerned about his finances. He
visits a financial advisor to help him determine whether his
finances are in good order. The advisor requires the following
information to prepare a Net Worth Statement.
He lives in a $100,000.00 home on which there is an outstanding
mortgage of $60,000.00. There is a car loan of $15,000.00 on a
car that is valued at $20,000.00. The loan is for three years. Dave
has $3000.00 in the bank and a $4000.00 cash surrender value
(near cash) on his life insurance policy. He has $10,000.00 in
mutual funds and $3000.00 in Canada Savings Bonds. He also
has RRSPs totaling $15,000.00. At the present time, Dave has a
credit card balance of $4000.00 and a small loan of $2000.00 that
must be paid this year.
Prepare a Net Worth Statement for Dave. What is his debt/equity
ratio?

27. Bill is married and has a young family. He wants to borrow money to
buy a travel trailer. The loan officer at the bank uses the following
information to prepare a net worth statement. HOMEWORK
Bill and his family live in an $80,000.00 home on which there is an
outstanding mortgage of $52,000.00. He owns a car valued at
$20,000.00 and owes $12,000.00 on a loan he took to buy the car. He
has $30 000.00 in an RPP (Registered Pension Plan). He also has
RRSPs valued at $7000.00. Bill owes a credit card company $6000.00,
and he has a personal loan for $2500.00 that must be paid in the next
few months. The family has $1500.00 in a chequing account and
another $3000.00 in a savings account at the local bank. He owns a
boat worth $5000.00.
continued on next slide...

28. 1. What is the family's present net worth? HOMEWORK
2. What is their debt/equity ratio?
3. The loan required to buy the travel trailer is $25,000.00. Will
the loan increase their debt/equity ratio beyond 0.5?
4. Should Bill buy the travel trailer? Explain.
5. Suggest some ways the family could increase their net worth
and/or decrease their debt/equity ratio.

29. Answers
(2)(a) Net worth is $74,000. (b) Debt/equity ratio is 0.28, or 27.7%.
(c) Their assets increase by $25,000, and the liabilities also increase
by $25,000. The debt/equity ratio increases to 0.62, or 62%.
(d) Bill should probably postpone buying the travel trailer until he has
at least half of the money saved up for it. By doing this, he would keep
the debt/equity ratio below 50%. He should not cash in his RRSPs and
RPPs to pay for the trailer, because these funds are intended for
retirement.
(e) The family could increase their net worth by:
• limiting their consumer spending (which would likely decrease the
credit card and short-term loans debts)
• increasing their savings (they have a reasonable amount in RRSPs
and RPPs, but very little in bank savings or other semi-liquid assets)
• investing their money in accounts that pay more interest or returns
than a bank savings account

30. The Jamison's Mortgage HOMEWORK
The Jamison family has decided to buy a house. they will require a
$121 000.00 mortgage to help pay for the house.
• Bank A offers them a 25 year mortgage at 7.25%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid.
• Bank B offers them a 20 year mortgage at 7.25%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid if
they repay the mortgage with monthly payments over 20 years.
• How much interest do they save by repaying the mortgage in
20 years instead of 25 years?
• Bank C offers them a 25 year mortgage at 7.00%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid.
• How much interest do they save by paying the mortgage in 25
years at 7.00% instead of in 25 years at 7.25%. (i.e. how much
cheaper is Bank C than bank A?)

31. The Jamison's Mortgage
The Jamison family has decided to buy a N=
house. they will require a $121 000.00 I%=
mortgage to help pay for the house. PV=
PMT=
• Bank A offers them a 25 year mortgage
FV=
at 7.25%. Determine the size of the P/Y=
monthly payment, the total amount paid for C/Y=
the mortgage, and the total amount of PMT: END BEGIN
interest paid when the mortgage is repaid.

32. • Bank B offers them a 20 year mortgage N=
at 7.25%. Determine the size of the I%=
monthly payment, the total amount paid for PV=
the mortgage, and the total amount of PMT=
interest paid when the mortgage is repaid if FV=
they repay the mortgage with monthly P/Y=
payments over 20 years. C/Y=
PMT: END BEGIN

33. The Jamison's Mortgage
• How much interest do they save by repaying the mortgage
in 20 years instead of 25 years?

34. The Jamison's Mortgage
• Bank C offers them a 25 year mortgage at N=
7.00%. Determine the size of the monthly I%=
payment, the total amount paid for the PV=
mortgage, and the total amount of interest PMT=
paid when the mortgage is repaid. FV=
P/Y=
C/Y=
PMT: END BEGIN

35. The Jamison's Mortgage
• How much interest do they save by paying the mortgage in 25
years at 7.00% instead of in 25 years at 7.25%. (i.e. how much
cheaper is Bank C than bank A?)