Know Your Finances

Any endeavor in life requires time, resources and, of course, initiative. The topic I want to explore here relates to financial resources. We all have some idea if we are rich or poor, cash strapped or living lavishly. However, this is where a lot of people draw the line when it comes to knowing their financial situation. Entire industries exist to confuse us and to scare us to feel that we are not “trained” to handle our own finances or do not have the necessary time.

There is no excuse for anyone not to know exactly how much cash they have (1), how much their assets are worth (2) and how much they owe others (3). Even more critical is knowing how these numbers change over time. It’s this simple!

Do not let financial jargon scare you. On a piece of paper or spreadsheet write down the three figures above and save it. A month later write the updated three figures down and try to understand what caused the changes. You are not a corporation or a government, you can do this in five minutes.

The three figures represent your balance sheet. The changes represent your income statement. Without these, you have little chance of ever properly planning and funding any major project or event. What I have outlined above is almost too simple but that is precisely its power.

People often think of their salaries as their income and what they pay for things they buy as their expenses and tend to look at numbers from the income statement perspective. Even the financial packages are created to show the income broken down into expenses — lots of numbers. I believe the above method represents a far superior acid test. There are many reasons for this which I can discuss in another entry. For now, if you haven’t already done so, go figure out the three numbers above and write them down and date your entry. One month later on the same day, repeat this process and study the differences.

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