I have been thinking financial thoughts today.
I notice a fashion for showing 'Net Worth'lately rather than earnings v outgoings. WHilst this makes a lot of sense to me as an accountant. After all net worth is your personal balance sheet showing the state of your financial play at a given time. Whereas just looking at your income and your expenditure does not anything other that what you managed to bring in and to spend in any period. Net worth makes more sense if you are worried about or concentrating on your future security. Income v expenditure is useful as a shortterm monitoring tool to ensure you are not over spending.
I keep two sorts of spreadsheet to help us monitor where we are & how we are doing towards our financial independence.
I keep a spreadsheet with a budget column and a column for each month. I then have a row for each type of income and a sub total. Next a Set of rows for fixed expenditure, such as council tax and mortgage repayments. A sub total row and then a row which shows me monthly income less fixed costs. Next some rows showing variable costs, holiday payments, credit card repayments etc, another sub total and then another income less costs row. Lastly rows showing transfers to saving account and a final balance of income less all the months expenditure.
The second spreadshhet shows all of our assets on one side, proeprty we own, pensioin investments, savings etc. On the other side any outstanding debts, mortage owed, any credit card and other debt. All of the good news less all of the bad news is our net worth.
At the moment our balance sheet is looking pretty good but our Profit and loss account is a bit tight. This is because we choose to repay more quickly on our mortgage than we needed to and also because we made some additional purchases at a price as an investment for the fmaily in future.
I would be happy to set up a spreadsheet which can be downloaded from the site if anyone would find this useful. Um, I dont know how to do it (the download I mean, the spreadsheet bit is easy.)but I will try to work it out if I can. I think it is really important that we all understand how our money works for us to help us to be secure in future. Its really just the flip side of being frugal.