Learn how to apply the— “Keys to Success”—in your life
Personal Financial Statements Can Show You the Way To Improve Your Finances—Today...
There are many different types of financial statements available that can help you get a better picture of where you stand financially.
A Personal Cash Flow Statement (Budget) is a statement that reflects your income and expenses on a monthly basis.
By properly utilizing a personal cash flow statement prior to purchasing and/or selling your home you can better determine if home ownership is appropriate for you at this time, or whether staying where you are and saving—and/or pursuing other options are your best choice.
A personal cash flow statement helps determine how liquid you are and is a good barometer in determining your ability to meet your future financial obligations.
In addition—by doing a pre-purchase and a post-purchase cash flow statement (cash flow income and expenses analysis before and after you have purchased your home) you can get a realistic picture of how you can enjoy your home after purchase.
Furthermore, you will know the cash that you will have left over on a monthly basis (discretionary income) after your housing expenses and all of your other debt has been analyzed.
Remember, it is best that you do both the pre-purchase and post-purchase cash flow analysis "prior to" purchasing and/or selling your home.
Even if you don't exactly know your future housing and other expenses—it is best to use projected realistic expenses to ensure that you have no future surprises.
If the financial picture that you get in the pre-purchase and post-purchase cash flow analysis is not to your liking you would then be in position to not proceed with the purchase and purchase at a later date—if you desire—once you are in a better financial position.
A Personal Income Statement is a statement that analyzes and summarizes your income and expenses over an interval of time.
An Income and Expense Statement presents a summary of your income and expenses during an interval of time, usually one year.
By subtracting the expenses from your income you will come up with your discretionary cash flow (money available to you on an annual basis after all expenses are accounted for).
This is money that you can use annually for enjoyment, debt reduction, additional savings, gifts or whatever else you may desire.
If you use the "discretionary cash flows" to reduce debt or to save your balance sheet ratios will improve and hence your net worth will increase, which should always be your annual goal.
Your Discretionary Income is income that you can spend or save any way that you like after your fixed and variable expenses have been paid.
Your Discretionary Expenses are your luxuries or expenses over which you have total control as to whether you want to incur them or not. For example—vacations, entertainment, gifts and the like.
A Personal Balance Sheet Statement is a statement that analyzes your assets and liabilities at a single point in time.
The balance sheet is a listing of assets, liabilities, and net worth that outlines your resources and shows how those resources were obtained or financed.
The balance sheet statement is a particular snapshot of your finances at a particular point in time (actually the date of the statement). Many third parties (Banks, Lenders etc.) utilized the personal balance sheet in the past when deciding to grant certain credit.
Today it would be used in conjunction with your personal income statement and personal cash flow statement if you were to seek a loan of a certain type for certain credit.
Your Net Worth is the amount of wealth or equity you have in owned assets.
Your net worth is actually calculated by taking the difference between your total assets and your total liabilities.
Regardless of your assets and your liabilities the statement must always balance.
In simple form Assets minus Liabilities = Net Worth.
A personal balance sheet will give you a good idea of your financial condition if you are organized and want to totally take control of your finances.
A Personal Balance Sheet Statement will show you whether you hit your targeted goals and also show you if you fell short.
By preparing the balance sheet in advance you
can use it for budgeting and/or projections and when used in conjunction with
your cash flow statement and income statement it can give you a much clearer
picture of your financial future.
By being able to see your future more clearly you will be in a much better position than you were to make decisions that are good for you and your family.
A Statement of Net Worth is a statement that tells essentially what you are worth after your assets and liabilities have been analyzed.
Your "Net Worth Statement" is a much better metric than simply what your income is or what you appear to own and appear to owe.
Your annual goal should always be to increase your net worth!
The Statement of Net Worth is derived from the Balance Sheet.
You can use your cash flow statement, income statement, and balance sheet in conjunction with your net worth statement to get a better idea of your overall financial health.
By knowing your financial situation "up front" you
can plan for your future more effectively and get a realistic picture of how
you can enjoy life and get the pleasures of life that you know you deserve.
Also, by knowing your financial position after your home purchase (by doing this analysis on the front end) you will know your financial situation after your projected home purchase and/or sale.
You will know what your discretionary (money left after all of your monthly expenses have been paid) income is on a monthly and annual basis and know prior to purchasing or selling if you can continue doing the things that you like to do—or do additional things that you are not doing at this time!
In short, financial statements can help you plan better when you have adequate financial information in easy to understand statements.
The financial statements—however—are only as good as the accuracy of the data inputted.
Therefore, you want to be sure that your income and expenses are as accurate as possible and your assets and liabilities are as accurate as possible.
The real value of the above financial statements will be seen years down the road in the improved living conditions for you and your family!
The above financial statements are an aid to sound financial management and not a substitute for sound financial management.
By properly creating personal financial statements and applying the information properly it will benefit you and your family the most!
Your life will have new meaning and you will begin to see your future in an intelligent, consistent and proactive manner—and with the clarity and focus that will serve your and your family's best long-term interests.
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