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I graduated in finance from BYU’s Marriott School of Business Management.  One of the best, most useful courses I took down there is Provo was a personal finance course.  Some of the accounting courses didn’t stick until I worked at Zion’s Bank and had to relearn accounting basics.  Personal Finance, however, stuck well.

One of the best tools I found for managing household finances is a tool that investors use to analyze large corporations, banks use for deciding whether or not to lend to companies as well as individuals.  In face, you most likely filled out one of these when you obtained your home mortgage.   It’s called a balance sheet.

Let’s take a minute and pretend you are CFO of a corporation… oh wait, you are!  Your family.  Whether you’re a household of one or ten, you have to look at finances like you’re a CFO.  The best place to do this is through the balance sheet. 

The balance sheet is the tool used to determine your net worth.  In a nutshell, your personal balance sheet adds up the value of all the things you own; house, cars, gun collections, sports memorabilia, antique pianos, retirement and savings accounts, etc, and subtracts the debts or liabilities you have outstanding; you mortgage, car loans, credit cards, student loans, etc.  The difference between these two numbers is what we call your “Net Worth”.  The end goal in the money game is to have enough of a net worth at retirement to be able to retire and live comfortably.  If you do a really good job, you may even leave some assets for your beneficiaries to inherit. 

Now, a couple of examples may be useful here.  Let look at a home purchase first.  If you purchase a $250,000 home, but you have a mortgage of $200,000, you have a positive affect on your net worth of $50,000.  Once you pay off the mortgage, you’ll have a positive value of $250,000 towards your net worth.  If you buy a car for $15,000 and finance the whole purchase, chances are you’ll owe more on your car than you could sell it for, and thus, you have created a negative effect on your net worth.  Again, the end goal is to improve net worth enough so you can eventually retire.  Credit cards can be detrimental to net worth, as they usually have no real asset tied to the debt. 

In our free 52 week program, we offer a simple and easy to use worksheet to quickly determine your “Net Worth”, a snapshot of your personal finances.  We hope that it helps guide you in making wise financial decisions and gives you a better shot at the retirement you’re hoping to enjoy.


Personal Balance Sheet
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My last few articles have been on the topic of the personal balance sheet.  A while back I read about the concept of the personal balance sheet and one’s net worth being compared to a bathtub.  I can’t remember which book it was in, but here’s a shout out to whoever came up with the analogy.  Here’s how it works: You have the faucet and the drain.  If you’re thinking financially, you’ve probably already figured out that the faucet is your income, or money coming in, and the drain is your expenses.  The end goal is to get the bathtub as full as possible.

Obviously, if the drain is wide open, there’s a fair chance that the tube will never fill up because water is leaving as fast as you can get it out of the faucet.  Conversely, if you close up the drain and crank the faucet wide open, the tub will overflow pretty quickly.  If only it were so easy in real life, right?

The same concept does apply in our financial lives.  It’s important to keep more coming in than going out.  Our culture tends to think that budgeting is for those with a weak faucet, and those with a weak faucet think they can’t ever be rich.  This is the doing of advertisers selling their goods.  You have to remember that this is your REAL life. 

Any financial decision you make needs to take into consideration the effect it will have on your net worth.  That brand new car will be awesome, but it could slow the rate your bathtub is filling up, so maybe it would be better to buy a nice used car instead.  Don’t get caught up in the race with the Jones’s just to end up with an empty bathtub down the road.  Don’t fall victim to the idea that a wide-open drain signifies a full bathtub.  There are plenty of people out there spending every dime they get.  Once the faucet shuts off, and it does for all of us, these people are going to with they’d kept the tub full

The end discussion here is that you don’t have to have a huge faucet of money to “get rich”.  You also don’t have to completely plug your drain.  You just need to consider each decision in the context of your bathtub.  “Is this going to help fill up my bathtub, or is it going to drain my bathtub?”  Instead of thinking about what that next paycheck can buy today, think about how you can build wealth and protect against a rainy day with that paycheck.  In time, you’ll become one of the “millionaire next door” types who has learned to control their money, rather than their money controlling them.  Here’s to getting wet!!!


 
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As an individual, you are of infinite worth.  Your abilities and qualities are unique to you.  The world needs you and you need to know that.  But, we’re not talking about that kind of worth today.  We’re talking “net worth” today.  I know, it would be more warm and fuzzy to talk about the first type of worth, but I’m not a guidance counselor or a self-help guru.  I’m a finance guy. 

Your “net worth” is the sum total of all of your assets minus all of your liabilities.  All you need to do to figure your net worth is to add up all of your assets and subtract all of your liabilities, and boom!  There’s your worth, er, huh, net worth. 

In the 52 Weeks To Prosperous Living program, we’ve given you a guidance sheet to figure your net worth, but if you aren’t subscribed to our free program, here’s a list of assets that could be included in your personal balance sheet.  I’ve also included a list of liabilities that could be used to figure your net worth:


Assets

  • Stocks
  • Bonds
  • Cash (savings accounts, CD's, cash in your safe)
  • Retirement Accounts (401k's, IRA's, etc.)
  • Vehicles
  • Annuities
  • Cash Value of Life Insurance
  • Real Estate (including your primary residence)
  • Art
  • Jewelry
  • Guns
  • Home Furnishings                                                                            

Liabilities

  • Mortgage(s)
  • Home Equity Loans
  • Auto Loans
  • Student Loans
  • Credit Cards
This measure, your net worth, is the best indicator of your financial position at  a particular time and will help you to measure your progress toward your financial goals.

Most people will want to improve their net worth each year into retirement, and then spend down from there.  To do so will require some discipline.  You may need to cut spending or find a way to increase income.  More income or lower expenses , and better, safer investment returns are your only ways to really increase your net worth. 

After developing your net worth worksheet, you’ll be well on your way to your financial goals.  I hope you reach them!!!  
 
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I graduated in finance from BYU’s Marriott School of Business Management.  One of the best, most useful courses I took down there is Provo was a personal finance course.  Some of the accounting courses didn’t stick until I worked at Zion’s Bank and had to relearn accounting basics.  Personal Finance, however, stuck well.

One of the best tools I found for managing household finances is a tool that investors use to analyze large corporations, banks use for deciding whether or not to lend to companies as well as individuals.  In face, you most likely filled out one of these when you obtained your home mortgage.   It’s called a balance sheet.

Let’s take a minute and pretend you are CFO of a corporation… oh wait, you are!  Your family.  Whether you’re a household of one or ten, you have to look at finances like you’re a CFO.  The best place to do this is through the balance sheet. 

The balance sheet is the tool used to determine your net worth.  In a nutshell, your personal balance sheet adds up the value of all the things you own; house, cars, gun collections, sports memorabilia, antique pianos, retirement and savings accounts, etc, and subtracts the debts or liabilities you have outstanding; you mortgage, car loans, credit cards, student loans, etc.  The difference between these two numbers is what we call your “Net Worth”.  The end goal in the money game is to have enough of a net worth at retirement to be able to retire and live comfortably.  If you do a really good job, you may even leave some assets for your beneficiaries to inherit. 

Now, a couple of examples may be useful here.  Let look at a home purchase first.  If you purchase a $250,000 home, but you have a mortgage of $200,000, you have a positive affect on your net worth of $50,000.  Once you pay off the mortgage, you’ll have a positive value of $250,000 towards your net worth.  If you buy a car for $15,000 and finance the whole purchase, chances are you’ll owe more on your car than you could sell it for, and thus, you have created a negative effect on your net worth.  Again, the end goal is to improve net worth enough so you can eventually retire.  Credit cards can be detrimental to net worth, as they usually have no real asset tied to the debt. 

In our free 52 week program, we offer a simple and easy to use worksheet to quickly determine your “Net Worth”, a snapshot of your personal finances.  We hope that it helps guide you in making wise financial decisions and gives you a better shot at the retirement you’re hoping to enjoy.


 
If you do not plan, you plan to fail.