The balance of finance
Author: Aaron Ehasz
In business terms, a balance sheet is a document that reflects the financial position of a particular institution at a specific time through the application of accounting theory.
This financial analysis is essential to measure the performance that got the business and to identify problems that may arise.
In personal finance is possible to apply the same principle to achieve similar results. We take stock of our economy to know how well we are managing our heritage and how healthy are our finances.
To make a balance we need to take into account two major components of our economy: assets and liabilities.
The balance sheet is calculated by subtracting the liabilities to assets held. That is, what is less what is owed.
What is asset finance?
The term active means all assets and resources that can be traded. Assets represent the value of our money.
To sort the better we can divide them into:
Property. In this section we include not only housing but also own the business premises and land which we own.
Household items and / or office. In this category include furniture, appliances and similar objects.
Automobiles. Whether new or used, purchased on credit or cash, each car of which we bill our account name as an asset.
Investments. The money is in the bank or any financial instrument that provides performance is also an asset.
Valuable items. Here we note various goods such as jewelry and art pieces.
Wage. Finally, we must take into account the average of what we earn each month, as it constitutes the most immediate of our assets.
What are the liabilities?
Among the liabilities that we consider are all the commitments we have not yet settled, the most common are:
Mortgage. Often a major liabilities is the amount of mortgage credit. This liability is the amount we pay for our home in case of requesting a loan at the time of purchase.
Card (s) of credit. Acquired debt (balance only) for payments made by credit card should be seen as a liability.
Other. This item is to consider all credit purchases made at supermarkets, department stores, as well as borrowing from family or friends.
Current expenditure. In contrast to wages, we must take into account the costs that we have a monthly (average) by way of food, clothing and / or income. That is, the average of all we need for everyday life.
Balance
To take stock of personal finances perform a list of the amounts of assets and liabilities, subtract the latter to the former and get a percentage. That is, calculate what percent of what we have is what we must.
The best thing is that the liabilities are in the range between 30 and 50 percent of our assets, this in order to keep our economy stable and not spend more than we can afford.
Another important point is that liabilities should be larger in relation to the assets of greater value. So, if you have a property of high or medium value, it is natural that the mortgage is the greater of the liabilities. Instead, you should not expect non-durable goods such as food, clothing and accessories are a liability too high, when the assets are not large.
It is advisable to make a personal assessment at least once a year. This allows us to accurately detect the state of our economy. The monthly statements are also useful as an organizational form, however, may not represent the reality of our finances as there are positive or negative months and a period of thirty days may be insufficient as a parameter.
Also take stock of our personal finances can be a good time to organize and file documents that support our assets and liabilities.
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