Tuesday, August 4, 2015

PERSONAL FINANCE – KNOWING IS HALF THE BATTLE

Why do businesses spend so much time and energy keeping track of their assets, liabilities, income and expenditures?  The answer is quite simple.  Businesses need accurate financial information in order to help manage scarce resources. 

Do individuals also need help managing scarce resources?  Absolutely!!  The scarce resource is called money.  Yet, how many American households keep track of their personal assets, liabilities, income and expenditures?  Study after study show that few Americans have a solid understanding of their personal finances.  It should not come as a surprise that almost 50% of U.S. households do not have enough money in savings to cover an unexpected expense of $2,000. 

Keeping track of your personal finances should be as common place as going to the dentist every 6 months.  It is a necessary task to help protect long term financial health.   Using a trusted advisor to review your personal financial statements can serve as a great tool to receive independent recommendations for areas of weakness and highlight areas of strength.   Once you have a solid foundation of accurate personal financial statements then it is much easier to make accurate financial forecasts.  Would you rather live paycheck to paycheck or have a plan to achieve financial independence?

People go to work their entire lives to receive periodic deposits of a scarce resource.  How much of your income goes towards expenditures?  I think it is common sense to implement a system to help manage that scarce resource.   With any type of management system knowing is always half the battle. 

Nick S. Wold, CPA, MA

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