The motivation you must have in doing a personalfinancial statement analysisis to help you understand how you spend your money. You will be surprised to see that you spend more than you plan to. If you want to be financially stable, you need to watch over your income and expense by doing a financial statement analysis. There are two financial statements required to perform an financial analysis. They are the personal cash flow statement and the personal balance sheet.
Your personal cash flow statement will determine your earnings and expenditures. The goal here is to discern your net income at a specific period.
Your cash inflows are anything that will give you cash such as your salary, savings account interests, investment dividends, capital gains and property sale. Your cash outflows are anything where you have to spend such as your bills, personal care, groceries and all other purchases. Negative net income means you are spending more than what you can afford. If this is a reoccurring event, then you need to learn more about how to budget.
The other personal financial statement that you need to prepare is the personal balance sheet. You will list all your assets, liabilities in the balance sheet to determine your net worth.
Your personal assets can be any type of bank accounts, your cash and properties. Liabilities are anything that you owe such as bills, debts, loans and other payables. If you subtract your liabilities from your asset, this would be your net worth. You need to increase your net worth to be financially stable. If you want to increase your net worth, you can either raise your assets and lower your liabilities.
Both are necessary to do a personalfinancial statement analysis. Your positive net income will help you pay off liabilities. Both will make you understand your finances and your personal stability in terms of money. By knowing your net worth, you will be able to change your spending habits and focus on your budget management. This will help you a great deal in your way towards financial stability.
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