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.
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.