Understanding Personal Financial Statements

Personal Finance – Understanding Personal Financial Statements:

Personal finance and real estate investing go hand-in-hand. Personal Finance – Turning Money Into Wealth (6th Edition) explains personal financial statements, what they tell you, what they used for and their benefits.

Balance Sheets
•A personal balance sheet is a statement of financial position on a certain date. It includes the assets you own; the debt, or liabilities, you have incurred; and your level of wealth.
• The difference between the value of your assets and your liabilities is your net worth, the level of wealth that you and your family has accumulated.

Income Statements
•Whereas a balance sheet tells you how much you have accumulated as of a certain date, an income statement tells you where your money has come from and where it has gone over some period of time.
• An income statement is an income and expenditure, or net income, statement, because it looks at both cash inflows and outflows.
• Once you understand where your money comes from and where it goes, you’ll be able to determine whether you’re saving enough to meet your financial goals and how you might change your expenditure patterns to meet those goals. Then you’ll be able to construct a budget.

Financial Plans and Budgets
• Developing a plan of action involves setting up a cash budget. •The starting point for the cash budget, which is the centerpoint of the plan of action, flows directly from the personal income statement.
•By comparing the income available for savings and investments with the level of savings needed to achieve your goals, you can determine whether you need to alter your current spending patterns and by how much.

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