Business/Company[1] management rely on accountants and finance professionals to prepare their companies’ Profit and Loss Accounts (Income and Expenditure statement, for not-for-profit organisations) and Balance Sheet, as a tool for evaluating the business/company’s health.

To simplify things a bit, a company’s income and expenditure statement (I&E) or Profit and Loss (P&L) account shows in different categories, what it spends money on in the course of its day-to-day activities over a period of time, and the source of the money (and other resources) it spends.  The activities it undertakes in the course of its day-to-day activities over a period of time are what determine the components   that end up on its balance sheet.

The balance sheet shows a company’s financial position at a specific point in time – it is a classified summary of what a company possesses, what it owes and how it is funded at a specific point in time.

To translate the business/corporate world terminology into practical every day terms, I surmise that one’s personal balance sheet gives a snapshot of their Net Worth.

Pic source: http://www.commoncoremoney.com/2017/04/why-your-net-worth-is-bogus.html

The more one’s assets are over their liability, the higher their net worth is.

As with a business, one’s net worth, is determined by the income received and expenditure incurred during a specific period.

Income being the amount of money (or other valuable resource) earned or received during a given period (INFLOW) while expenditure is the amount of money (or other valuable resource) that is spent during a given period (OUTFLOW).

INFLOW less OUTFLOW = Net Cash flow

Pic source: https://www.smartsheet.com/free-cash-flow-statement-templates

Over the course of the next few weeks, I will assess the components/categories contained in both the cash flow statement and net worth calculators above; and continue to demonstrate how these fit into our everyday lives and suggest changes one could begin to make with a view to eventually achieve financial freedom.

It is my view that the best place to start the journey towards towards financial freedom is knowing what your current position is i.e. what is your net worth?  

Pic source: https://sikasem.org/knowing-your-net-worth/knowing-your-net-worth-2/

Are you on this journey with me?  If you are, I suggest that using a cash flow statement and networth calculator that works for you (there are several online to choose from), find out what your current position is.

[1] Business and company are used interchangeably through this post

📝 Originally shared under my first blog, bitalks; part of the journey that shaped Life’s Riches.

🧾 Want to take charge of your finances? Start by understanding where you are now. Find a net worth or cash flow calculator that suits you and work through it honestly; this is your foundation.

💬 Got questions about the numbers? Curious about what counts as an asset or liability? Drop a comment or message me, let’s demystify it together.

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