How To Create Your Balance Sheet
Your balance sheet is one of the key wealth creation tools you need to create and maintain your wealth.
Your life is your “business.”
Your income statement and your balance sheet are the two wealth tools that show you how well you are doing in the money aspect of the business called your life.
The balance sheet shows whether your business – your wealth – is growing or shrinking. In nature, if something isn’t growing it’s dying. A Net Worth that isn’t growing each and every month is a sign of a sick wealth kitchen and a loud shout to you that you need to change something.
You can only know if your Net Worth is growing or shrinking by measuring and tracking it – you do this with your Balance Sheet.
Notice any resistance you may have to doing this!
Perhaps you don’t want to see a negative net worth. Remember this is not your SELF WORTH!
You must know where you are now to start the journey – so strap yourself in.
You are becoming a Wealth Chef. To do that you must have the right tools in your wealth kitchen. Now is the time to empower your wealth cooking with the tools you need. Please don’t over-value your assets. And you need to be completely honest with yourself about your levels of debt.
Now I’m going to share with you how to create your own Balance Sheet.
In The Wealth Chef book you will find a template for your Balance Sheet and at the back of the book is a code for you to get all your wealth cooking tools in electronic format.
Start With Your Assets
Add up all the things you own that add money to your pocket. This will include:
- the current value of your pension plan, both your personal and company pension plans if you have both;
- the current market value of your home;
- the current market value of any income generating investment property you own;
- the value of any equity investment portfolios you have (whether shares or unit trusts/mutual funds);
- the current market value of any business you own (that is, what you would get for it if you sold it today);
- the market value of any intellectual property you own directly (this is a bit tougher, but take 60% of the annual income you earn from these products and use that as a rough estimate).
NOTE: we are not including any cars you own, nor furniture, nor your beach hut, your jewellery, your shoe collection or grandma’s tapestry. These are not wealth generating assets.
You see, these things sit in what Robert Kiyosaki calls the doodad pile. These are the things you choose to have but they have no role in your wealth creation. Other doodads include your clothes, your music system, the holiday you went on, your flat screen TV. It’s all just stuff.
For the purposes of your wealth creation all this stuff, while nice to have, has no wealth cooking value. In fact, they are often not even nice-to-haves if they resulted in your going into debt… but more on that another time.
Add the assets together. That is the total of your asset drawer.
Now subtract the value of your current home, ie, the place where you live, if you own it.
You are doing this because, although your home has real value (unlike most doodads), your home IS NOT a wealth generating asset for as long as you are living in it – so it isn’t part of your wealth generating net worth.
We are only interested in assets that contribute to your wealth feast.
Now that you have completed the asset part of your balance sheet, let’s fill in the liabilities.
Over to the Dark Side – Your Liabilities
Dig deep and be really honest here. Add up all the things you owe.
Your liabilities include:
- the mortgage on your home;
- mortgages on investment property;
- any car loans you have;
- student loans;
- credit card debt;
- debt owed on store cards;
- any personal loans you owe;
- any hire purchases you’ve taken on
Although you have excluded your car and your home as a wealth cooking asset, you must include any loans you have against these in your liabilities drawer.
Add up all your liabilities – this gives you the total of your liability drawer.
Don’t panic if your liability drawer is fuller than your asset drawer.
Well… maybe panic just a bit – because uncomfortable is good, it causes change. That’s why we are here, to do something about it.
What is Your Current Net Worth?
You might want to sit down when you get to this part.
Minus the total of all your liabilities from your investment asset total.
This is your current net worth and the current status of your Wealth Feast Mass.
For 95% of the population this is negative. In other words, most people have more liabilities than assets. And that picture never changes until they stop working and sell the house to (hopefully) release some money.
The house may be full of everything that opens and shuts – they might drive fancy cars and wear the latest designer clothes – but in reality they are broke.
If you fall into this category don’t despair. Just the fact that you are reading this and are figuring out where you are financially – and are prepared to do something about it – puts you in a tiny minority of financially savvy folk.
By the time you have mastered the Wealth Chef recipes you will know how to reduce your expenditure and increase your quality of life at the same time; how to increase your investment contributions so your asset pot grows bigger more quickly; and how to get yourself debt free and be well on your way to financial freedom with a big fat healthy wealth feast supporting you.
You can get all the Recipes for Wealth and all your Wealth Cooking Tools from the The Wealth Chef book. Get your copy today and with it you’ll also get The Wealth Chef’s 30 Day Money Makeover free.
Let me know how it goes.
How does it feel knowing exactly where you are now financially? What aspect of creating your own balance sheet surprised you most?
Let me know on our Facebook Community Page (it’s free to join) and see what others are saying.
Love
Ann
P.S. Your net worth is not your self worth! Paradoxically… your net worth is closely linked to your self worth. The journey to financial freedom is about consistently increasing both.
