Staying In Touch With Your Finances

Jan 2016


            We’re now one week into 2016 and by now we have probably broken or forgotten just about every New Year’s resolution we’ve made.  The holidays are behind us and our day-to-day routine is back to the norm.  That being said, every year at this time I take the opportunity to remind you there are two things you need to do that will significantly help you.  The first is to do a personal family balance sheet.


A personal family balance sheet is nothing more than a listing of all your assets and all your liabilities.  Subtracting assets from liabilities gives you your net worth.  That number is important particularly, for those who do personal family balance sheets at least once a year.  The reason is because you can see if your finances are moving in the right direction or the wrong direction.


One of the mistakes people make in doing a personal family balance sheet is they tend to overestimate  the value of their assets.  This is particularly true when it comes to collectibles.  Just because you think an autographed baseball signed by Al Kaline is worth $10,000 doesn’t make it so.  It is important that you value assets not at what you think they’re worth, but what someone else will actually pay you for it.  In most cases I tell people not to include collectibles in their personal family balance sheet.  Of course, for some people with significant value in their collectibles those obviously should be valued.  However, once again, the true value is not what you think they’re worth but rather, what someone would be willing to pay you.


The same is true with your home.  Many people overestimate the value of their home.  You can use some of the real estate websites such as Zillow to get an estimate for the value of your home.  Once again, for you to overvalue your home may make you feel good but it won’t help you in understanding your finances.


The other document that everyone should do is a cash flow statement.  A cash flow statement is nothing more than a statement that keeps track of what comes into the family household and what goes out.  Particularly from an expense standpoint, it is important that you know what is coming out of the family finances.  If it actually costs you $5,000 a month to live but you estimate it only costing you $3,000 a month, you will run into problems down the road.  Therefore, it is important to be accurate when doing these statements.


From an expense standpoint, you ought to be able to determine within a few hundred dollars every month, where your money is going.  I cannot stress enough how important it is to know what it costs you to live.  In doing any sort of retirement planning, whether someone is in retirement or preparing for retirement, what it costs you to live a month is a key element.  It doesn’t matter what it costs your next door neighbor to live a month or what the national average is; those are immaterial.  The key is what it costs you to live a month.  That is why it is important for you to do a cash flow statement so you know what that number is.


An additional benefit of doing a cash flow statement is that since you can see where your money is going, it allows you to be more efficient with your money.


It is not sufficient to do a personal family balance sheet and a cash flow statement once and then forget about it.  At a minimum you should do it every six months.  This will allow you to stay in touch with your personal financial affairs.  I believe once you start getting in touch with your finances, it will create a domino effect and you’ll be surprised how fast things can improve from a financial standpoint.


Another great benefit of doing these two statements is the fact that you can compare how you are doing year to year.  If through the cash flow statement you find your expenses are increasing, then you can take the necessary steps to handle that.  Whether it’s changing the allocations in your portfolio or even looking at cutting down on certain expenses.  The bottom line, the more you are aware of your finances the better things will be for you.


One last note, no you don’t need some sophisticated software program to do these two statements.  Of course, there’s nothing wrong with using technology, but it’s not essential.  You can do these statements the old fashioned way with paper and pencil.  The bottom line, you want these statements accurate and you want to do them on a regular basis.


Like everything else in life, the first step is the most difficult.  No doubt, the first time you do a personal family balance sheet or cash flow statement it will take you some time to complete.  However, once the first ones are completed, your future statements are much easier.  Also, don’t forget the goal of these documents is not just to say you did them but rather, to allow you to be more in touch with your finances. And, being in touch with your finances will result in more money in your pocket, exactly where it belongs.


Good luck!



Rick is a fee-only financial advisor.  His website is  If you would like Rick to respond to your questions, please email Rick at