Tag Archives: Personal Finance

Financial Friday: The Balance Sheet and Income Statement

This is part of a weekly series on personal finance and wealth building.  If you care to read the first one, click here.

The first step of the trip from where you are now to where you want to be is understanding how to tell where you are.  For wealth, that’s a Balance Sheet.  You also need to know how that’s changing over time, which is where you need the Income Statement.

Many financial ‘experts’ poorly or incorrectly explain the balance sheet, assets, liabilities, income, and expenses.   I’ve seen one go as far as to suggest your house isn’t an asset (and then suggest a good way to get rich is to invest in real estate).  While I’m not presenting a lesson in Finance, these are pretty much the same tools you would learn to use in a Finance 101 class. Continue reading


Financial Friday

This is an inaugural post in a weekly series on personal finance and wealth building.

Managing your personal finances and building wealth can seem a daunting task.  It did to me about 12 years ago, when I was over my head in credit card and auto loan debt, renting an apartment, and struggling to pay the bills, even though I had a pretty decent paying job.  With the help of my now wife, I figured out how to dig out of the hole, and in a short time turn my negative net worth into what many would consider a positive net worth.

Lots of folks make lots of money selling books on how to get rich.  Some of those books have outstanding advice, some aren’t worth the paper used to print them.  Much like the fitness and strength training world, a lot of effort goes in to making something pretty simple look really complicated.

There are only a few basic steps to building wealth.

Get Out of Debt

One of the most valuable lessons I got out of my Finance classes in graduate school was don’t pay interest on depreciating assets.  That means exactly what it says – when you purchase an asset that will depreciate (clothing, cars, televisions, computers) pay for it up front, not on credit.  I know this sounds easier than it is (simple doesn’t mean easy, trust me), certainly when it comes to items with high up front costs.  Not everyone has the $25,000 it takes to buy a car.

Most people are already in debt.  They carry a balance on their credit cards, they have one or more car loans.  In order to build wealth, you have to eliminate these debts.  (I’ll address appreciating assets and debt later, but for now, ignore your mortgage if you have one).  Your net worth only goes up as your income exceeds the expenses of your liabilities.  Which leads us to… Continue reading

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