When I first started this site, I wrote about financial statements; in particular, the balance sheet and the income statement. People typically think of these in conjunction with companies, but they can be incredibly useful for individuals as well.

If you don’t already use these financial statements in your personal finances, you should probably start with the income statement. If you’re unfamiliar with how it works you can check out the above link and email me with questions. The reason I suggest you begin with it first is because it allows you to get a handle on all of your expenses. Most people are very aware of how much money they have coming in, but they need to do a better job of keeping track of where their money goes. Keeping a personal income statement will also tell you whether or not you’re spending more money than you’re earning, and by how much.

Once you’ve got a handle on the income statement you can move on to the balance sheet. From the balance sheet you will determine your net worth. As you continue to update your balance sheet you will be able to see the trend in your net worth. Hopefully you will see it continue to increase.

The most important aspect of these financial statements, however, is that they allow you to make informed decisions about your finances. You’ll be able to determine how certain expenditures or purchases will affect your overall financial picture. You’ll also be able to better formulate a plan that will get you where you want to be and allow you to reach your goals.

 Subscribe to Fiscal Musings | Digg This! | Stumble it!