When my wife and I first got married, we weren’t great with money. Thankfully we were always able to pay our bills – which helped us ignore just how bad we were.
Carrying a credit card balance seemed normal. The car payment was an accepted part of life. We had no plan. No investments, no budget – no consideration of our negative net worth. Our financial situation was one misstep away from disaster.
The Perspective Change
I already shared how I changed careers multiple times, and the story of ramping my side-hustle into a full-time business. As that business started to get serious, I had to get serious about running it. A big step forward was teaching myself some basic business finance. Through that learning, and success using it in the business, I had an epiphany. Those same principles and practices work for personal finances too!
Once we implemented certain business practices into our personal finances, things started to turn around. It was the start of our journey to understanding and the path toward financial freedom.
Here are three tips from common business practices that can help improve your personal finances also.
Get Familiar With Your Balance Sheet
A balance sheet in a business is a snapshot of the company’s finances at a point in time.
The balance sheet reflects all of the assets that the company owns. That includes cash, investments, inventory, and similar items of value.
The balance sheet also reflects all the liabilities of the company. This includes balances outstanding on any loans, committed obligations, tax liabilities and similar.
Lastly, the balance sheet reflects the shareholder’s equity. This is the difference between the assets and the liabilities. If the assets are larger than the liabilities, this positive value of how much equity the owners have. Of course, bigger is better for those owners! If the shareholder’s equity is negative, the company is essentially worth nothing.
Balance Sheet ~ Net Worth
In personal finances, this equates to a statement of net worth.
Your personal statement of net worth is a listing of all your assets minus all of your liabilities. I used to track this in an Excel spreadsheet and update it annually. Now I just use an online tool like Mint – because it’s free and super-easy to use.
Just like the balance sheet gives a snapshot of the health of a business, your net worth gives a snapshot of your personal financial health. One of the best measures of financial fitness is to track your net worth over time.
Here’s a screenshot of our net worth chart. That steady upward trend is the positive result that we’re looking for.