The third major step in the financial planning process is to prepare financial statements. Make a list of income. Make a list of expenses. Calculate net cash flow. Make a list of assets. Make a list of liabilities. Calculate net worth. Make notes.
Make a list of income.
Make a list of expenditures.
Calculate net cash flow.
Add all income in one column. Add all expenses in another column. Subtract. The difference is net cash flow.
Net Cash Flow Formula:
Net Cash Flow
Make a list of assets.
Individual assets include:
Make a list of liabilities.
Individual liabilities include:
Calculate net worth.
Add all assets in one column. Add all liabilities in another column. Subtract. The difference is net worth.
Net Worth Formula
Identifying property titles, account numbers, and dates of reference. Calculate debt to income ratio and asset allocation percentages. The purpose is to evaluate and document strengths and vulnerabilities in cash flow and net worth.
TIP: With all financial calculations, there are estimates and assumptions. Follow generally accepted accounting principles (GAAP) when preparing financial statements.
QUESTION: When was the last time you prepared your personal financial statements?
Chris Bryant is an American financial advisor.