Planning Starts with the Basics

In developing a plan for your finances, the toughest question often is : "Where do I begin " Before investing in stocks and bonds or buying life insurance , before implementing any change or making any decisions , you first need to analyze and understand , your entire financial picture. Two documents you can do just that. A balance sheet and a cash flow statement will enable a thorough look at your current financial situation and to take better decisions about the future. With a little work , you can develop both of these tools and be on your way to a solid plan for your finances.
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A balance sheet is a snapshot of your personal finances at one point in time. It contains two main elements: what you own (assets) and what you owe (liabilities) . - Liabilities Net Worth = Assets : Your net worth is expressed . That is what you minus what you owe possess .
A balance sheet clearly lists all assets and liabilities. Examples of assets include : house, investments such as stocks and bonds , savings and checking accounts, 401 ( k) , IRA , business interests , motives, and jewelry , among others. Liabilities are mortgages , credit cards, education loans and other debts . Once you have a list of everything you own and everything you owe created , you simply subtract the sum of the assets of the sum of the debt , which is your net worth .
The ultimate goal of most investors is to increase their net worth . The balance sheet is a very useful tool to identify strengths and weaknesses in your current finances , as well as to determine your goals for the future. Someone with a disproportionate share of the liabilities could set a goal to eliminate this debt . On the other hand, someone could use a positive net worth ( more assets than liabilities) plan , save and invest in retirement, college or other destination .
Statement of Cash FlowsAfter analyzing your balance sheet and determining your goals, you need to decide how to fund these goals . A well formulated plan is one not only with realistic goals, but also a useful means of achieving them . That is, with goals is good, but you have to be able to pay for it . With a cash flow statement allows you to determine how you pay for your goals.
A cash flow statement is a detailed look at all the money come and go over a period of time . It shows what you earn (income ) and what you spend (expenses) . - Expenses Net Cash Flow = Revenue : Your net cash flow is expressed . That is what you minus to earn what you spend .
Some examples of income include : wages and salaries , self-employment , dividends, interest and other investment income . Expenses may include mortgage payments , rent payments , insurance, utilities, clothing, food , child care , alimony or child support, travel , entertainment , loan payments , education , taxes , donations , gifts and gasoline. After listing all you earn and everything you spend, you can calculate your expenses from income , net cash flow by simply subtracting .
By analyzing your cash flow statement , you can easily identify them cut expenses and net cash surplus to use on your goals. Generally, someone should focus on cutting costs , positive cash flow , before you save or invest to achieve future goals with negative net cash flow first . Is achieved by positive net cash flow , excess money will be used directly for funding and achieving your goals .
When developing a balance sheet and a cash flow statement , it is important to remember a rule-of -thumb- quality - quality. The more detail and care you put into your planning documents , the more effective they will be. A plan is only as good as the effort you put forth when creating .
Jonathan Citrin provides financial planning services aim . Go to  m for hundreds of educational articles about personal finance, retirement , investment planning and College Savings