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How to Eat an Elephant: Achieving Financial Success One Bite at a Time by Frank Wiginton

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Chapter 2

Where Are You Now?

A man is lost before he begins if he does not know the ground he stands on.

—Anonymous

NOW THAT YOU KNOW WHERE you are trying to get to, you need to understand where you're starting from, and then you will be able to map your course of action from here to there. To do this properly for a financial plan, you need to prepare a net worth statement. This doesn't require a lot of work, just a little bit of organization, a little bit of patience, and a little bit of thought.

Net Worth Statement

A net worth statement is a document that lists all of the assets you have, all of the debts you have, and then subtracts your debts from your assets:

It is important to divide these items into three categories:

  • The assets and debts you have
  • The assets and debts your spouse has
  • The assets and debts you have jointly

There are many reasons for separating them out by ownership, but the biggest reason is for tax planning.

The Canada Revenue Agency (CRA) taxes each person individually. For this reason, financial planners need to know who owns what to be able to show you how to structure your assets to save you taxes. For example, if you are a high-income earner and your spouse is a low-income earner, it is better for you to pay all the household bills and for your spouse to make the investments. This way, any income that is made on the investments is taxed in the hands of the lower-income spouse. This saves the family more tax dollars and increases ...

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