What’s a balance sheet? Isn’t that something businesses worry about? I don’t have a business – yeah you do, it’s called your life. Just like any business you need to know what assets and debts you have and what you’re worth. A balance sheet is the tool for that. It’s a simple tool to let you know what your total assets and liabilities are at a specific moment in time and it’s easy to use.
Everything and everybody that’s serious about money keeps a balance sheet. Okay, Meyer Lansky, the mob’s accountant, kept it in his head. Mere mortals need to keep track of their assets and liabilities outside of their brains.
A number of people don’t want to know what their financial status is. It’s easy to understand in a time when the average student loan debt is $32,000 or more and stagnant wages since the sixties aren’t going to make you say WHEE! I can’t wait to look at how much I own and owe either.
Would you ignore the oil in your car until the engine died? I doubt it. Whether or not you pay attention it’s going to need to be changed. You can either pay attention, change it regularly and have a car that runs for a long time to come or run it into an early grave.
With a balance sheet you know if you can afford more debt, if needed, or if you have assets that could be used to make investments that create long term wealth. You can also figure out if you’re in a world of crap and need to stay off the debt train and pay some stuff off.
If you’re an accounting geek, buzz off. This article is for the uninitiated so they can develop a decision making tool to get a toehold on controlling their finances. It’s not a course on accounting.
To calculate your personal net worth, total your assets and liabilities and then subtract the liabilities from the assets. The result is your net worth. A picture is worth a thousand words so have a peek at the chart below.
This is a pretty simplistic example of what a personal balance sheet would look like, but it gives you the idea. If after you complete your balance sheet you feel you’re ready to look at investment properties to increase your wealth give us a call. Jacobgrant has people on staff that can look at your situation and point you in the right direction.