Personal Finance Statements

Transcript

When did you last walk into a large store owned by a national chain such as Target or Walmart? It's pretty amazing what goes into running those stores. There are thousands of items to buy. Some things are constantly changing. There are different trends. There are price and demand fluctuations. And with all these things happening, not to mention many of these companies manage hundreds of or thousands of stores. How do you know if that company is being profitable? How do you know if it's going in the right direction?

Keeping track of all the items in the store could take thousands of pages. Companies summarize everything into financial statements that give them an idea of how things are going. What's impressive is that these financial statements are things that you can utilize yourself. The same principles apply to personal finance. If you want your finances to thrive, like some of these big companies, you can learn from these big companies. Let's try to make it fun along the way.

Statement of Cash Flow

The first thing we can learn about is the cash flow statement. So think about it like this. If you were in a boat with a leak that started sinking, you'd probably do your best to bail out the water so the boat wouldn't sink underneath you. But if the leak were too big, the boat would continue sinking no matter what you did to try to stop the water. So when it comes to personal finance, if you have too much money going out compared to the money that's coming in, it doesn't matter.You're going to sink financially if you can't turn that around.

The trick we can learn from and adopt from corporate finance is to improve our finances by having a cash flow statement. So, it sounds fancy, but let's break it down. It's just in the business version of tracking how much cash is coming in versus how much cash is flying out. We're talking about money companies make from selling products and how much they spend on running the business. And that's important to know how much it can borrow and how much it needs repaying.

In personal finance, it's your cash flow. And let's face it, if you don't know where your money's going, it's like trying to run a marathon with your shoelaces untied. You're going to trip up. So tracking your cash flow doesn't just help businesses avoid running out of money. It can help you avoid that oops moment when your account balance drops lower than expected or lower than you want it to.

Income Statement

Let's discuss income statements. These are the business world's way of showing how much a company makes and spends over a period of time. In other words, what's coming in versus what's going out, and what's left over after all of that? How does this apply to you? Imagine it as your budget. It's your paycheck minus your spending. Pretty simple math. It turns out that knowing how much you're making versus how much you're spending can be a game changer. And with companies that are winning, they know the numbers. They know how to track the income versus the expenses. And that helps them understand what they can afford.

Individuals who track their income and expenses have a good pulse on what they can afford. And if it's been a minute since you've checked on your finances in this area, I'd recommend taking a look and seeing how much you have coming in versus how much you have going out.

Balance Sheet

Let's bring it all together with a balance sheet. This financial statement shows a company's assets, liabilities, and equity at a specific time. It's like a financial selfie or a snapshot of where you stand at that very moment. For businesses, it's a big-picture view of whether they rely more on debt or the owner's investments in the company. For you, it's a snapshot of your financial life, what you own versus what you owe, and how things are working overall. Financial statements aren't just for big businesses. They're a superpower that you can use to understand your cash flow, track your income and expenses, calculate your net worth, and review your balance sheet.

Conclusion

You'll be in better control of your finances. And just like a successful company, you'll have more clarity in the decisions that you're making. Contact us if you're ready to take your financial game to the next level. We're happy to help. Whether you're building your wealth, cutting down debt, or just trying to get a better grip on your money, we're here to guide you every step. Make sure that you check out our next video. We'll be talking about budgeting basics, and we'll see you there.