Think of Yourself as a Business

I want to share one of the best pieces of advice I have ever been given. When it comes to your personal finances – think of yourself as a business.

A pile of annual reports (and other letters)
Photo credit: azza-bazoo

At least once a year, prepare a personal balance sheet – total up everything you own and everything you owe. Then look at what your Net Assets are (Total Assets less Total Liabilities).I’d also suggest including your Net Financial Assets, to do this take away any personal assets including your home.

Your Net Financial Assets are important if you are thinking it would be nice not to have to work one day. It tells you the money you have at your disposal to provide a passive income to replace your employment or business income. If you’ve just bought your first home – don’t worry about this being a negative number – more important is having a plan to ensure you start getting ahead. Keep track of this over a period of years  so you can see your progress over time.

It is a powerful tool in creating action. If you are not seeing any improvement you have to ask yourself why not? What do you need to do differently? Maybe over one year a fall in net assets could be caused by falling property or sharemarket values. If the trend continues though you better look a little deeper.

It could be time to take a closer look at one of your strategies such as cashflow (including spending), debt repayment, investment or superannuation.

2 comments

  1. Dave this indeed is the first place for anybody wishing to understand where they are financially today and where they maybe be at some time in the future to start.

    Importantly however it opens up what options are there to improve the position and this is where a is is a good advisor will be able to help with appropriate strategies.

  2. Agree completely Peter. There can be many options, it won’t always be one way that suits a client best.
    And of course flowing from this discussion is their cashflow which can be looked at in the same way ie. as if you are a business!

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