Anchoring your Financial Position is Step One in evaluating your “Success-ability” for starting your own business. Four Modules are provided to establish a basic snapshot of your Financial GPS. Before you start off on your own business venture, it’s important to have a realistic map of your current financial position. The first two modules address your income, expenses, budget expectations and your overall net worth.
The most basic measuring points for the Financial Health of a family are located inside their Financial Statement. Though they are the most important things to know regarding family finances, the public schools only recently began to include them in their curriculum.
Failing to Plan is Planning to Fail!
Spending Plan: More commonly referred to as a Budget, a spending plan is an overview of income and expenses over a range of time. You are in control of determining how you expect to make and spend that income. I don’t really like to call it categories: the income category, and expenses, all pretty self-explanatory. Anything that comes in is income, and anything that goes out is an expense.
In business we call the Spending Plan your income and expenses, or profit and loss. and the other one we call a balance sheet. So this is the family conversion of the same terms and they work the same way.
Net worth:The second piece of financial documentation is basically your net worth. To determine the financial health of your family, you simply add up the Value all of your Stuff and subtract the amount owed on your stuff. Whatever’s left over is your net worth. Unfortunately for families most of our stuff is not growing in value. Most of our stuff is actually shrinking in value because of use.
In the past we’ve always thought that our greatest asset was our home, our retirement plan, and our savings. However, with the economy and the financial meltdowns that have happened, the home is not always a guarantee of an elevator ride to the top. The home should be considered primarily as the place to provide shelter for you and should be cost-efficient over renting. Then when you sell the home, any amount in excess of your original purchase price plus improvements, is an asset gain.
However, from a net worth point of view, home equity is really the only asset that people seem to understand. My Step Two Module explains exactly what a positive asset is and what a positive liability is. We also cover what is a negative asset and a negative liability.
So, the difference between the Spending Plan and the Net Worth:
- Spending plan is a range of time from one set particular time to a second particular time
- Net Worth is a snapshot within that time frame. For example a specific date such as January 1st: this is my stuff minus what I owe, and later on December 31 this is my stuff minus what I owe. You then compare the two to see if your Net Worth is growing or shrinking.
Basically your plan provides a range in time, not a point in time. In other words it can be a weekly spending plan, a monthly spending plan, or an annual spending plan. You need to at least develop these units on a consistent basis depending on exactly how you want your spending plan layout. net worth is a point in time like a snapshot picture within the moving video of a Spending Plan. Keeping these anchored into the wind will at least provide direction and stability for whatever economic currents surround you.