Why is it important to create a personal finance spreadsheet?
To understand the importance of creating a personal finance spreadsheet let's first of all look at the following analogies:
- Before losing weight, you have to first of all weigh yourself.
- To be a successful race car driver, you have to schedule your laps.
As such, if you would like to create unimaginable wealth or to become financially independent, you have to start by creating a personal finance spreadsheet. Whereas you may not own a business, you are a business entity in yourself. Your earn money and spend it. There are assets that you own and there are also assets that you owe. If you lack a means of gauging your progress and comparing what functions and what does not, you are akin to a person walking without some sense of direction. However, this is a story for another day. The only thing you need to keep in mind is that something miraculous occurs the instant you start to gauge your growth.
If you can't find the time to look at your personal finance at least once in every 30 days, then you are not serious about accumulating wealth.
Comprehending personal finance spreadsheet in five minutes
You do not need to have the brains of a scientist in order to comprehend personal finance spreadsheet. There are basically two kinds of personal finance spreadsheet which you certainly have to understand. These are:
- Balance sheet.
- Income statement.
What is a balance sheet?
This is a document that shows:
- The assets that you own alongside the things that you owe (i.e. liabilities).
- The dissimilarities between the assets and liabilities (i.e. your net worth).
The cash in your bank account, the current market worth of the property you own (i.e. houses, land and car), as well as stocks are just but examples of your assets. Insurance payment, mortgages, credit card payment and any other expenses that you have to incur are regarded as liabilities. The difference between your assets and liabilities is what is commonly referred to as net worth.
What is an income statement?
An income statement is a document that shows:
- Where your revenues (i.e. earnings) are coming from as well as where your cash is heading to (i.e. expenses).
- The dissimilarities between your revenues and expenses, which is your net earning.
- What transpired over a given duration of time rather than how issues are a given moment as is the case with balance sheet.
For a majority of people, their main source of revenue is their occupation. As such, until your own a business, your primary source of income will be your job.
Microsoft Money and Quicken are the two most popular programs when it comes to personal finance. However, they are not really the best for creating personal finance spreadsheet. The main reason why a majority of individuals are scared of making and managing their own personal finance spreadsheet is because at some point in their lives, they discarded these applications. Microsoft Money and Quicken require you to spend hours sorting things out which should not be the case. The thought of having to spend countless hours trying to get things right is what makes many people to be scared of personal finance spreadsheet.
Reconciliation is the key
Reconciliation means gathering all the things that you spent your cash on in addition to the things you earned your revenues from. Thereafter, you need to match each and every one of them to your bank statement.