Ever wonder how you look on paper? Personal financial statements can look scary

February 8, 2008

Business

I once learned back in college that more then 2/3’s of the country look horrible on paper.  At work, we have all seen or heard about corporate financial statements, balance sheets, cash flow statements, etc.  Have you ever tried to do a personal financial statement on yourself?  Usually it’s pretty surprising the amount of debt that we have as well as all of the assets that we own.

You look around and you might have a lot of stuff, or you might feel that your debt is under control.  Try taking an assessment on what you own.  There are a number of websites that can give you the value of your belongings.  You can also do the cars you own, property, furniture, etc.  Usually it adds up to more then you realize.  This gives you a relly good estimate of what it would cost to replace everything you have.  That’s great for insurance purposes, and understanding your net worth.

 A few years ago, my wife and I discussed that we really didn’t have any assetts.  We had “stuff” but our true assetts were pretty minimal.  Since then, mostly with the help and encouragement of my wife (love you!), our cars were paid off, credit cards were under control, and we had purchased some property that has since been evaluated at over a 500% increase in 3 years.  We look much better on paper then we did a few years ago.

 Granted, looking good on paper doesn’t really get you further in life, but it’s a great start to understanding what’s important.  Your finances include more then just being able to make payments each month.  It’s constantly looking at the bottom line and making decisions with long term goals in mind.  Debt isn’t something to be afraid of, but it’s more of something you need to use wisely.

I often hear about people wanting to create debt in order to take tax write offs.  One common discussion is whether or not to pay off a large loans (i.e. mortgage and student loans) because you can write off the interest.  Personally I’d rather pay off the loan and if I REALLY want a tax write off, I could donate cash somewhere rather then giving it to the bank.  Also, I’ve done the math, and it doesn’t save you enough to write off the taxes.  You still come out in the red!

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