Businesses must maintain a balance sheet which details the financial balance of their enterprise whether it’s a company, partnership, or sole proprietorship. Individuals should do the same! In the case of individuals or families it is a Personal Balance Sheet.
What is it?
Your Personal Balance Sheet provides a snapshot of your financial condition, and is essential in making personal financial decisions and plans. More commonly the document is called a Net Worth Statement.
Whether you use the term Balance Sheet or Net Worth statement, it amounts to the same thing. You tally your assets, subtract your liabilities, and the difference is your net worth. Of course assets should be reported at fair market value (for example real estate) not what you paid for it, or how much it might be worth.
Why is it Important?
Your Balance Sheet is a scorecard. In sports we keep score to determine who’s ahead, and ultimately, who wins the game. It’s the same thing with the game of life and its financial components. Do you want to know if you’re ahead of last year? Do you care if you’re winning or losing? Are you competitive? Do you want to sharpen your financial skills, and become a more successful player? Do you want to be a champion?
The Stakes are Higher
Unless you’re competing at a professional level, the stakes are generally not so high in sports. Of course if you’re training for the Olympics or even involved in heavy competition at an amateur level you may view it as awfully important. But typically it’s just a game. But what about the game of life? Doing well in this game is a big deal. It can determine where you live, how well you live, how you spend your leisure, what opportunities you have, what schools your children attend, your professional and personal opportunities, your level of personal security, etc.
The Bottom Line
Like it or not, finances are important in modern society. You owe it to yourself and your family to treat the game seriously. Of course the game is not as important as your personal value system, so I could not say you must “win at any cost.” However, play the game fairly, skillfully, conscientiously, strategically, with your eye on victory, and keep meticulous score.
