What Is My Balance Sheet And What Does It Tell Me?

The vital key to truly knowing the state of your money health is your balance sheet.  Nothing else can do this for you, so it is important to understand the information it contains and how to interpret it.

You may already be thinking to yourself “I don’t have any financial background or education.  What do I need to know about this?”

So, the most important thing to know right now is that none of this is complicated.  Once it is explained, your concerns will melt away.  Knowledge dispels unease every time.

There are three terms that need definition.

• Assets – Things that you own that have a monetary value (cash, real restate, autos, etc.)
• Liabilities – Amounts of money you to someone or something (loans, unpaid taxes, etc.)
• Net Worth –  The difference between the value of your assets and your liabilities

Thus, the concept of your personal net worth is as simple as:

• Sell everything of value that you own
• Pay off every debt that you owe
• Check to see if you have any money left

See?  Not complicated at all!  And the balance sheet is the report that spells it all out neatly.  And always remember that your net worth is the only meaningful measure of where you stand in terms of your money.  Never substitute anything else for it in guiding how you behave with your money and with your future.  Taken by themselves, the balance in your 401k doesn’t tell the story.  Neither does the size of your annual income.  And certainly not (ever-ever-ever) the amount of credit you are approved for!  You are nowhere in knowing your true financial situation unless you always use the “gold-standard” – a recent balance sheet, as the basis for your actions and planning.

Your balance sheet reports your financial situation as of the the date of the information.  So an up-to-date one is far more valuable than one based on older data.  Now of course you are wondering how to get your own balance sheet in a timely manner?

It turns out that our 7 step MINT Method and PlanButVerify Personal Financial Planner are built to do just that, and more.  Since a picture is worth a thousand words, here is a link to a balance sheet produced by our PlanButVerify Personal Financial Planner:  Balance Sheet as of end 2019.  It was generated using the example data that ships with the PlanButVerify software.

And it is easy to try out our solution!  Here is a list of the PlanButVerify versions and how they provide just what we have been talking about in the post:

• PlanButVerify-Lite:  free – delivers a balance sheet based on the information you enter during setup
• PlanButVerify-LitePlus:  purchase for about the price of a latte – delivers the balance sheet as per the Lite version and in addition calculates into the future and delivers textual warning notices of any likely future money problems based on the information you entered during setup
• PlanButVerify:  purchase for the price of two dinners at a nice restaurant (less booze!) – provides all of the above plus a set of balance sheet and income statement (described in a separate post) for each year of your (or spouse’s) projected life span!

Now, think carefully about this.  What you are offered here is where your setup information is likely to take you, for better or worse!  And when do you find this out?  Right now!  And if you are serious about living a secure money life, wouldn’t you want see the future?  Right now?  Hmmm?

It’s your life.  You need to play it out.  The next move is yours.