Focus on Your Balance Sheet

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You will more often hear people talk about how much money they make (aka, their income) than you will hear those same people talk about their net worth.  These are very different things.  You should focus on your personal net worth versus how much money you bring in each year.  How often have you prepared your income tax return and been left wondering where all that money went throughout the year?  Focusing on your net worth will answer that question.  In business, this is similar to a Balance Sheet because it shows on a specific date what you own and what you owe (the net worth, or equity, is the difference between the two).  The Income Statement is only going to show for a chunk of time what the income was and what the expenses were for that period.

If your net worth isn’t increasing enough for you then you need to make more income and/or lower your expenses to be able to payoff debt, save cash, or invest (depending on which Financial Stage you are in currently).  You do need your income to exceed your expenses to produce increases to your net worth unless your assets are doing the heavy lifting for you by producing growth.  Sadly, far too often you will have an increase in income only to have your standard of living go up with it.  You get a new promotion with a hefty raise so you buy a nicer car.  You get a big commission year and you take a couple months off to travel.  Not to say either of those things are bad, my point is just to make sure when your income increases you are using it wisely and focusing on your net worth versus purely your income.  Plan for how your income will be allocated by implementing a strong financial plan and budget.  Calculate your personal net worth every quarter to see how things are changing in terms of what you own and what you owe.  Look back at the prior post on how to calculate your personal net worth and start paying attention to it today.

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