Ever since I read Robert Kiyosaki’s “Rich Dad Poor Dad” I’ve been taken up with the notion that any fool can dispense financial advice. I plan to indulge that fool within me with this little blog. Just like many materialistic mortals, money fascinates me.  I want to make more, work less and make the most of what I make. I have also been fascinated by how badly people, including specialists such as accountants, financial analysts and bankers manage their own finances.

This blog is about random ideas that might help someone get their ducks in a row.

The Balance Sheet

While almost everyone knows what a Balance Sheet is, for the uninitiated it is a statement of assets, liabilities and capital of a company at a given point of time. Essentially the statement shows what the company owns and what it owes and thereby helping the reader understand what it is worth at the current point in time.

The Personal Balance Sheet

Similarly, personal net worth at any given point should be a function of the difference between your assets and liabilities. Just like in a company if assets minus liabilities is a negative figure you might want to take a long hard look at your finances and start restructuring before its too late.

Elements of a Personal Balance Sheet

You may own many types of assets at this current point in time. While you may classify your house, car, land, gold and gems as assets, others might include their CD/DVD collection, coin collection or even a stamp collection as their asset. My general rule of thumb is to include it if you can find a buyer for it tomorrow for a price that can be reliably estimated. Otherwise leave it out of your balance sheet for now.

Here’s an example.

Do it all over again at the beginning of the next month and see how much your net worth has increased.

If it doesn’t keep increasing, it can mean that your assets are losing value or your income is not supporting your expenditure. Either way its bad news.

The personal balance sheet helps you figure out where you stand and what assets are actually working ‘for’ you. You can check out a sample of the model here