Narrow Bridge Finance » Personal Financial Statements

Make a Bills Calendar to See What Owns You

Eric — Mon, 16 Aug 2010 16:31:28 +0000

In Fight Club, Tyler Durden famously said that “the things you own end up owning you.” I have written about how hard you have to work for your possessions once before, but I decided to take it a step further and find out how much time I have to work every month to pay bills.

It turns out that I spend nearly 75% of my time at work for recurring bills, including rent, student loans, and utilities. That means only about ten hours every week are for the things I like to do, such as eating and entertainment.

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You can also build a calendar like this. I have put together a free spreadsheet on Google Docs to help you figure out how much of your paycheck goes to fixed bills. From that spreadsheet, I created a second Google Calendar that I used to input the work days per month. It turns out that my biggest fixed expenses are taxes, rent, and student loan payments.

This was an eye opening exercise. Take a run through and let me know how it goes in the comments.

Make a Bills Calendar to See What Owns You is a post from: Narrow Bridge

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A Look Back at Personal Financial Statements

Eric — Tue, 20 Apr 2010 22:12:51 +0000

About a year ago, I wrote about the importance of having a personal income statement, personal balance sheet, and personal cash flow statement. I then tied it all up with a look at what personal financial statements mean.

To recap what I said in that post, here is a brief rundown of what each statement means from last year’s post:

The Personal Balance Sheet gives us our liquidity position. To analyze the information here, take a look at the quick ratio and acid test. If your current assets do not meat or exceed your current liabilities you need to make a quick change to your financial situation.

The Personal Income Statement tells you how much you are making in a given period in the form of a net income. A high net income means you have a good income/spending gap. A negative net income means you are spending more than you make and should make a quick lifestyle change.

The Personal Cash Flow Statement gives you a breakdown of your cash position in a period. It is okay for you to have a negative cash flow in some instances, such as paying down debt. If you do this for too long, however, you will end up in trouble with debt.

What they can tell you is still as relevant as ever:

Stock analysts grade companies every day and give them ratings for credit worthiness and investment grade. Compare yourself to publicly traded companies by calculating their quick ratio, return on assets, and profit margin. It is a fun exercise to see your total financial health.

In the comments, tell us what your stock would be worth. Would Jim Cramer be bullish on an investment in you?

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August Net Worth Update

Eric — Tue, 01 Sep 2009 17:49:32 +0000

Surprisingly, spending $5,000 on a class/trip in New York lowers your cash and net worth! [sarcasm] But seriously, $1,000 per credit hour is expensive tuition for anyone. I am only two quarters from graduation! That means I also have two quarters left to pay for. About half of my tuition goes to student loans, I pay for the rest.

Just remember, your net worth is your personal balance sheet. Your “net worth” is your equity in your own personal finances. Here is this month’s update, which included one class paid for out of pocket.

August Net Worth Update is a post from: Narrow Bridge

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What Do Personal Financial Statements Mean?

Eric — Mon, 20 Apr 2009 20:15:50 +0000

To wrap up the series on Personal Financial Statements, we are going to explore what the results really mean and recap the findings.

The Personal Balance Sheet gives us our liquidity position. To analyze the information here, take a look at the quick ratio and acid test. If your current assets do not meat or exceed your current liabilities you need to make a quick change to your financial situation.

The Personal Income Statement tells you how much you are making in a given period in the form of a net income. A high net income means you have a good income/spending gap. A negative net income means you are spending more than you make and should make a quick lifestyle change.

The Personal Cash Flow Statement gives you a breakdown of your cash position in a period. It is okay for you to have a negative cash flow in some instances, such as paying down debt. If you do this for too long, however, you will end up in trouble with debt.

Stock analysts grade companies every day and give them ratings for credit worthiness and investment grade. Compare yourself to publicly traded companies by calculating their quick ratio, return on assets, and profit margin. It is a fun exercise to see your total financial health.

In the comments, tell us what your stock would be worth. Would Jim Cramer be bullish on an investment in you?

What Do Personal Financial Statements Mean? is a post from: Narrow Bridge

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Personal Financial Statements: Statement of Cash Flow

Eric — Wed, 08 Apr 2009 19:37:00 +0000

We all have cash come in (hopefully) and cash go out. At the end of the day, the accrual system shows us what assets we have and what liabilities we owe, but not our cash position. That is what the statement of cash flow is for.

Anytime you use cash, write a check, or use your debit card (not credit), cash changes hands. The following template helps you sort out the details of where your cash is going and what the net change is.

The goal here is to minimize cash outflow from operations (living expenses). You also want to see the final “Total Cash Flow” be positive.

I have saved this as a Google Spreadsheet that anyone can access. Feel free to copy it to your own spreadsheet or into Excel on your PC. The only cells that you need to fill in are the grey ones. Everything else is automatic.

Make sure to put cash in as a positive number and cash out as a negative number.

You should now have a Balance Sheet, Income Statement, and Statement of Cash Flow. Soon we can find out what we are really worth using financial valuations.

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Personal Financial Statements: Income Statement

Eric — Fri, 03 Apr 2009 17:48:00 +0000

Continuing the series on the personal financial statements, we are going to look at the Income Statement. A corporate income statement is laid out with these major figures. The statement on the right is from Google Finance’s view of Research in Motion, maker of the Blackberry.

Revenue/Gross Profit – Cash brought in and direct costs
Operating Income – Income after expenses
Net Income – Income after all expenses including taxes and interest

So, what does that translate to for us? Here is a personal income statement based on a hypothetical situation. This is made up for educational purposes:

I am such a great guy I made that spreadsheet public here: Google Docs.

So, a net income is what you keep after everything you earn and spend. Your net income rolls into your balance sheet as cash or assets.

There is not right or wrong net income. There is only one rule, IT HAS TO BE GREATER THAN ZERO! The bigger the better. You should put that net income into savings or retirement. You could even put savings as a category under expenses or a deduction of income in the revenue section.

If you have any questions about preparing your personal income statement, please let me know in the comments.

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Personal Balance Sheet

Eric — Mon, 30 Mar 2009 14:00:00 +0000

As an investor, I look at the statements of many companies before I make a decision to invest. This week, we will look at our own personal financial statements. This may involve some leg work for each of us, but I think the project will be worthwhile in retrospect. Today, we are going to start at the core of our financial health, the balance sheet.

For those of us who have not taken accounting, here is a quick rundown. Assets on the left, liabilities on the right, shareholder’s equity below liabilities. Assets + Liabilities = Shareholders Equity. For us, equity is synonymous with net worth.

To build my balance sheet, I used my most recent Net Worth IQ entry and made a few adjustments using Excel. For more about NetWorthIQ, see the net worth link on the personal finance arsenal or click here.

After some manipulation, I came up with this Personal Balance Sheet:

Remember that the balance sheet is a snapshot in time. Every time you buy something, cash (asset) goes down or credit (liabilities) goes up. If you buy an asset, such as a car, home, or valuable personal property, your property asset goes up.

Assets as a positive number plus liabilities as a negative number give you your personal equity. If the number is positive, you are in fair financial shape. If you are in the negative, you are in bad shape. Here is a condensed version of my balance sheet that is more comparable to a corporate statement:

Looking at the balance sheet on a short term-long term basis, we can see our immediate liquidity. A common measure of immediate liquidity is the quick ratio, or current assets over current liabilities. My quick ratio (12,768/227) is 56.25. That means I can cover my current assets 56 times with my current liabilities. A quick ratio of 1.0 means you are living literally paycheck to paycheck. A quick ratio below 1.0 means you are dealing with immediate liquidity issues (can’t make payments).

Most companies use within one year as current. I am using within one month as current, as that is more appropriate for a person making regular bill payments. I just made a tuition payment, so my ratio is actually quite a bit lower if I used today’s data. In one month you can undergo a big change.

Working on saving, investing, and cutting credit card debt will dramatically increase your quick ratio. If any of you do this, please post your quick ratio in the comments if you feel comfortable doing so. Keep on the lookout for the Income Statement and Statement of Cash Flows later this week.

Personal Balance Sheet is a post from: Narrow Bridge

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