Home / Finance / Personal Finance should not make you lose your mind (Part I)

Personal Finance should not make you lose your mind (Part I)

Decisions, driven by the brain, are taken at every stage of our life. None more frequent, and consequential than the matters of our money. It distils queasiness in us, doesn’t it? Thinking about our own money, your Personal Finance. Perhaps that is why we don’t like to talk about the process of making it – only how we enjoy it. That is predominantly due to the fact that Money is such an important part of our life, yet doesn’t have a certain start, a definitive end, and everything in the middle is uncertain. The feeling compounds when we start thinking about our responsibilities. Geez, just typing this is making me nauseous. In addition to that, it is so bloody complicated. Scroll through this template of how to compute your Personal Financial Statement and Personal Cash Flow Statements

FINANCIAL STATEMENT
Date:_______________

ASSETS (Current Value)

TOTAL

SELF

SPOUSE

Checking accounts $ $ $
Savings accounts
Brokerage accounts
Money market accounts
Certificates of deposit
IRA accounts
Keogh accounts
401(k) plans
Pension plans
Other retirement accounts
Life insurance (cash values)
Annuities
Bonds (government)
Bonds (Corporate)
Mutual funds
Stocks
Other securities
Money owed to you
Home
Other real estates
Automobiles
Household furnishings
Jewelry
Other assets
 

Total Assets

 

LIABILITIES (Current Value)

TOTAL

SELF

SPOUSE

Home mortgage
Other mortgages
Automobile loans
Credit card balances
Installment accounts
Contractual obligations
Money owed to others
Income taxes
Pledges
Other debts
 

Total Liabilities

Total Assets (from above) $ $ $
Less Liabilities (from above) $ $ $
Net Worth (Assets less Liabilities) $ $ $

 

CASH FLOW STATEMENT

Period:     _________    to     ___________

Income

Total

Self

Spouse

Salary/wages $ $ $
Interest/dividends
Social Security
Retirement plans
Reimbursements/refunds (only if included as an expense)
Sale of investments
Other income
 

Total Income

$ $ $

 

EXPENSES

TOTAL

SELF

SPOUSE

Savings (including pension plan contributions)
Income taxes
Property taxes
Insurance (health, disability, life, car, home)
Mortgage/rent
Other debt payments
Utilities (heat, electric, water, garbage, phone)
Transportation
Vacation
Medical (other than insurance)
Personal ( small cash expenditures, such as haircuts)
Charitable contributions
Food
Restaurants
Recreation
Holiday expenses
Gifts
Education
Clothing
Other (children, professional fees, hobbies, etc.–if large expenditures, create a line item for each)
Miscellaneous

Total Expenses

 

Shit your pants yet? Take a moment to clean up. Compare this to two decisions we take, probably more often than we think about our money – going to watch a movie, or buying your favorite electronic item:

If you look at the thought process behind making a product, the first iPod was crystal clear in its approach. It knew exactly what to make, who it is for, why it is better than others, and how to sell it.

Now add the complexity of your finance with the 2008 financial collapse, the effect politics has on the stock market, and finally, the shrinking avenues of investment giving a positive return, in the mix and you have a challenge which boasts a monumental problem.

Money, there is no denying, is part of everyone’s life. It provides the warmth that perhaps only your child’s embrace can satisfy. It is the umbrella in a rain, the glass of water during a hot summer’s day, or the air you breathe after you resurface after a deep dive in the pool. Peace of the mind has an invaluable connection to prosperity – more than the credence we assign it to.

Yet the journey between your money in hand and your spend is a complicated one. The financial companies have made poor attempts in mastering this journey. Let’s take a look at it:

It’s scary, isn’t it? Human’s have made so many products and services efficient, but money and investment – that is something we have yet to master.

And the final ingredient to this complexity is that every year, your life goals keep changing. Your goals depend on your

  1. Financial Situation
  2. Current Earning Capacity
  3. Aspiration Goals
  4. Lifetime Goals, which depend on your age
  5. Retirement Goals
  6. And, the Stage of Life you are in

To give you an idea how your Lifetime Goals change, here is an infographic:

So what is the best way to solve this problem? We’ll get to it in the next Blog Entry.

About Shobhit Dixit

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4 comments

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