I have been a financial executive for almost my entire adult life. At 27 I was promoted to Vice President of Finance for a $20M production company that was in a bit of trouble. After a whole lot of forensic accounting we righted the ship and started moving forward as a healthy company. At that point I became responsible for increasing the value of the company for the owner. A reasonable goal and one that most companies and wealthy people strive for.
One weekend I sat down, heavily pregnant with twins, to review the company’s financial documents. I needed to assess which assets were actually performing and which assets we needed to optimize or get rid of. It dawned on me then that this was not something I did for myself. At 31, after 4 years of managing this company’s money, I had never thought to apply these same principles that made the company strong to my own life.
Most of us manage to our income statement, I know I did. We focus on how much money is coming in and our expenses. As long as we have more money coming in than what we want to spend we assume we are doing okay. We graduate to saving before too long but don’t actively review our balance sheets. Your balance sheet is what you own (assets) and what you owe (liabilities).
When I started thinking about my financial life in terms of income statement and balance sheet, I realized that I already had quite a few liabilities: student loans, credit card bills and a mortgage; and not as many assets: cash, investment accounts and things I could easily sell for cash. Reframing my mindset to concentrate on my balance sheet changed my approach to my liabilities. I only wanted to take on credit card debt if it was in someway increasing the value of an asset. And, the concept of pay yourself first really started to make sense. I wanted the first dollars I brought in to in someway increase the value of my assets. Then I wanted to use the remaining dollars to cover my living expenses.
This change in mindset really motivated me to think clearly about my living expenses because I wanted as much cash as possible to go towards my balance sheet. This change in how I thought about money is the catalyst that made me believe I could someday have a life built on my own financial terms.
The Evolve Planner has pages within the book to help you organize your asset and liability accounts. You don’t need to review them everyday, but taking 5 minutes every month (with a glass of wine) to make sure the balances are moving in your desired direction will keep you motivated!