Personal Balance Sheet And Income Essay example
Whoever you are, and whatever income or debt you have, I think it is important to try to think of yourself like a business entity. Like a business you will have income and expenses. A balance sheet and an income statement tell a business what they are worth, defines income and spending, and also helps the firm set and measure goals. Both of these tools are useful for long term planning. A business is often measured by profits, and your budget is the same way. Since the ultimate goal of personal finance is to make yourself cash positive each month, it is important to get rid of as much frivolous debt as possible. Any of your income that is financed by debt is temporary, and any of your income used to service debt payments is profit for someone else. A business that just breaks even eventually ceases operations, and businesses that operate at a loss are forced out of the market. The personal balance sheet and income statement here are slightly different from what a business might use, but will work the same way.
Just like a business, the balance sheet will show how much assets and liabilities you have. Assets can be classified as “short term” or “long term.” Short term assets are things that can become cash quickly (in one business cycle). Long term assets are things that take time to convert to cash. Liabilities are your obligations. Short term liabilities are your expenses and long term liabilities is your debt. Remember, with all…