Why Track Your Assets, Liabilities, And Cash Flow?
I frequently mention the importance of communicating with the “self” and understanding the “self” for the sake of personal development. Tracking your assets, liabilities, and cash flow is the equivalent for your personal finance. It is also imperative for solving your money problems and solving your money problems.
When you want to find out the health of a company, a division in a company, a deli at the street corner, or any other business, what do you do?
Interview their executives? No.
Simply observe their customer flow? No.
Based on reputation? No.
Ok, I know you are not that stupid.
You will look at their:
– balance sheet for total outstanding assets, long-termand liabilities, and short-term liabilities
– cash flow for revenue, fixed operation cost, variable cost, and essentially, profit.
If you want to know the health of your financial situation, you have to keep track of the same thing.
To improve your financial situation, or to simply GET RICHER, you have to understand those same parameters for yourself.
Hence, the need to track your assets, liabilities, and cash flow.
If for nothing else, you should at least know your expense and income in order to spend less than you earn, which is the most basic thing in personal finance everyone should be doing, in order to NOT go brankrupt!
You don’t have to keep track of every nickel and dime, unless you want to.
There are softwares out there that can assit you in doing this AceMoney, Microsoft Money, Quicken… convenience includes allowing you to import a file with all the transactions in the month from your online credit card account into the software. It really only takes 5-10 minutes each week if you perform updates weekly.
Otherwise, you can simply keep a spread sheet of the balance of all your saving/loan accounts and major assets, updated on a monthly basis. With the total balance showing monthly, you can compare and see which direction your finance is heading… either be up or down!
The most significant thing that I’d say about this is that it will at least keep you above negative or from going bankrupt, even if you are too lazy to implement any concrete strategy to improve.
Because when you actually SEE your total balance in real, concrete numbers and it is going downward and perhaps, in the negative, in RED… I’m quite sure 99.99% of you can no longer deny the fact and notice that something’s wrong and something must be changed. Hopefully before you can no longer pay all your bills.
Versus just having one of these thoughts in your head, “Darn, I’m poor”, “Hmmm, I’m spending too much”, “Oh, I think I don’t have enough money”.
That is in equivalence to something I always think –
That if wars are still fought with knives and swords, spears and halberts, people would be much less willing to kill because they’ll actually feel the refuting sensation every time weapon enters the flesh of another fellow human’s body.
Seeing the numbers is kind of the same thing.
You feel the stings and blows every time you see your total balance decreasing.
Worse yet, in the red.
On a personl note, tracking of my expense is telling me that I am spending quite a bit lately, which is okay because I’m still spending below my income and it’s money worth-while to make myself and others around me happy. However, I am reminded that I should buckle down a little.
Originally posted 2007-08-29 23:34:26. Republished by Blog Post Promoter