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Generating Financial Statements 

Your Personal Financial Statements

Personal financial statements are the roadmap that guides us from where we are today, to where we want to be tomorrow. They provide fixed points of reference from which we can measure our progress over time. Comprehensive financial planning starts here.

What are Personal Financial Statements?

There are two basic personal financial statements that everyone should prepare, or have one of our financial advisors prepare, at least once each year: the cash flow statement and the balance sheet.

This process is a critical first step in financial planning. Tracking your financial position and progress gives you a feeling of control -- you know where you are going financially. It helps you to make smarter decisions about your money, investments, and retirement plans.

The Cash Flow Statement

Simply put, "cash flow" is a measure of the money coming in and going out each month. A cash flow statement is an ongoing financial document that tracks your sources of income, your uses of income, and the difference between the two (surplus funds which can be invested towards future financial objectives or saved for a rainy day.)

If you keep a budget, you are, in essence, keeping a running cash flow statement. By tracking your cash flow on a monthly basis, you'll be better prepared to meet your financial needs. Here are some examples of expenses you may find on your cash flow statement.

Short-term expenses - your day-to-day expenses and standard of living items such as food, transportation, childcare, rent or mortgage, utilities, telephone, cable, etc.

Recurring expenses - periodic payments for items such as insurance premiums, tax payments, medical and dental expenses, etc.

You may also use part of your income to contribute to an emergency fund. This fund can be between three and six months salary and provides cash for emergencies instead of using debt, like a credit card.

Understanding where your income is going can help you establish intermediate and long-term goals. You can then meet these goals by systematic planning and saving, and investment strategies provided by our comprehensive financial planning firm.

Balance Sheet

Your balance sheet is a snapshot of your personal net worth. The break down of your balance sheet will boil down to this equation.

Total Assets – Total Liabilities = Your Net Worth

Estimating Your Net Worth

Total Assets - A list of the current estimated value of your assets, which might include the following:

  • Cash in banks and money market accounts
  • Cash surrender value of life insurance policies
  • IRA & Keogh account balances
  • Pension and 401(k) accounts
  • Equity in real estate
  • Personal possessions.

Add them up and you'll have a figure that represents your Total Assets at the moment.

Total Liabilities – Liabilities can include any of the following:

  • Mortgage
  • Bank loans
  • Car loans
  • Charge accounts
  • Taxes owed
  • College loans

Add these up and you'll have a list of your Total Liabilities. Ideally, it's less than your assets.

Your Net Worth - Your personal net worth is the difference between your Total Assets and your Total Liabilities.

When you gain control over your money through cash flow management, your savings will increase, as will your net worth. The process of preparing personal financial statements will bring you closer to controlling your personal finances and meeting your goals. Any of our independent financial advisors would be happy to sit down and help you develop your cash flow management strategies and answer the question of how to best invest your money. Understanding your financial situation helps us to develop a relationship with you and provide the best financial advice based upon that relationship and knowledge of your individual situation. Let us help you start building your financial roadmap today!

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

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