How to Money
How to Money

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Your personal balance sheet

“Acting brave and courageous, ain't advantageous for health and safety” -
Some more basic accounting jargon:
Assets: Money and things you own and can sell for money. Many assets lose value over time (cash, cars, electronics) others may grow (property, stock market investments, retirement investments).
Liabilities: Money and debt that you owe to banks, companies, and people. Written down as a negative amount. (e.g. -$100,000).
Balance sheet: A simple sheet with all assets and liabilities (of a person or a company).
Net worth: The sum of all assets and liabilities (everything you own minus everything you owe).

Whenever you walk (or get rolled) into a hospital the staff undertake a process known as triage, where they do a quick assessment of your situation to determine your needs. You might have a small cut that can wait for a while, or you might have a gushing wound and be bleeding out, in need of immediate and professional attention.
Luckily for you, personal finance isn’t nearly as complicated as medicine (but you might need equally urgent care). You can do your own personal financial health check in around fifteen minutes today. Before we can start with any future growth, you’ll need to first see what your current financial health is.

Personal balance sheet

To do your financial health check, we need to calculate your personal net worth, which is the sum of your assets (everything you own) and your liabilities (everything you owe), calculated in your personal balance sheet.
TO DO: Create your own personal balance sheet on a spreadsheet on your computer (or piece of paper, if you must). Or, better yet: you can view my and make a copy of it to customise it with your own information (Click the link, then: File > Make a copy). Add/remove items and change the currency as needed. It should take you around 15 minutes to complete. Send me a message if you get stuck. This is going to be one of your most important financial planning documents moving forward.
I also propose leaving some of those “medium to long-term investment” items on the assets side in your personal balance sheet. Even though your retirement account balance may be zero right now, write it down, since we’ll need to move it away from zero soon.


People like to project a certain image of how they want to be perceived by others. Just take a quick scroll through your favourite social media app, if you needed any proof. It’s never been easier to project an image of wealth and success.
With minimal effort or work, someone (let’s call him John) can go get a lease or loan on a brand new car, get designer clothes with big screaming logos, and go use their credit cards in fancy restaurants —things that many people will misinterpret as financial success when it is often the exact opposite and something that prevents John from gaining long-term wealth.
Chalk it up to financial illiteracy; dropping more than -$50,000 in the liabilities side over the next few years to pay off a depreciating piece of metal that is “worth” $30,000 (on the first day, $25,000 when they drive it out the dealership five minutes later). Basic arithmetic, but since we don’t see their balance sheets, we incorrectly assume: “Hey, John is so rich”.
Don’t be like that. And if you were like that, we’ll need to fix things.
(Note that researchers in the excellent, if slightly old book , found the preferred car of millionaires to be the humble Toyota Camry; models that are at least two years or older…but more on cars in another article).

Damage assessment

It’s not uncommon for people (or companies) to have a negative net worth on their balance sheet. If this is the case with yours: don’t panic (yet).
Sometimes we need to take on “constructive” debt upfront, like a student loan which you can reasonably expect to increase your income over an entire career, hopefully earning back the amount many times over.
Sometimes we make stupid decisions, like John, but we can take action to fix those mistakes, learn from them, and move on.
We’ll eventually look at ways to slash “destructive” debt (those silly, shiny depreciating or worthless things acquired with high-interest debt) and how to grow your assets, but for now, the most important thing is to just take note of your personal net worth for this month.
Write it down, no matter how big or small (or negative) it is.

In closing

After you’ve created your personal balance sheet, you’ll have to spend a total of five minutes at the end of each month (or if you’re not in debt, every quarter or six months) writing down your updated personal net worth to see how things have changed.
Include this monthly snapshot in your spreadsheet (my demo spreadsheet has a separate tab at the bottom for this, see below).
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Set a recurring reminder on your calendar (or go: “Hey, Siri, remind me on the 28th of each month to update my balance sheet”).
We won’t obsess over your net worth right value now, but rather focus on the direction it’s moving in the coming months; if your net worth is increasing or decreasing over time, by how much, and why.
Remember: don’t read anything else until you’ve completed your balance sheet to see what your personal net worth is.

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