"How much debt does your family have?" "How much net worth does your family have now?" "Are your weekly expenses reasonable?" Are you unable to tell, or do you only know approximate data?
How can you make a financial plan for yourself if you don’t even know your family situation accurately? How can you know whether you can invest so much money without accurate property information.
There is only one way to solve these problems, which is to formulate a family balance sheet and income and expenditure statement, do these two tasks regularly, control your family property status at any time, understand your own income and expenditure, and control Unreasonable consumption, reduce unnecessary expenses, and save some money for financial management.
When it comes to financial statements, most people will think of the work of corporate accountants. Those are professional statements made by accountants, which are very complicated. Some people think that these two things are only available in companies, how can individuals have them? In fact, they are not. Let me give you an example, you have to ask yourself how many bank accounts you have? A friend said this, someone has opened more than 10 accounts. In fact, each account does not have much money, so he doesn't care about it. But in fact, some accounts may have a thousand dollars in it. He may just put the money in when opening the account, and then ignore it.
Think about it if you have 10 accounts, one with one thousand and one with five hundred, it is not surprising that the total may be ten thousand or twenty thousand, so you need to understand the amount of your assets. For example, how many credit cards do you have? How much is the outstanding balance? A friend of mine said that he pays the minimum payment every month, but he uses his remaining funds to make fixed deposits. I am very surprised why that friend is like this. . Don't underestimate these credit cards. In fact, you will bear a lot of expenses, ranging from dozens of dollars a month to hundreds of dollars a year.
The advantage of financial statements is that they allow you to understand your financial expenses, income, etc. at a glance and in a clear order. Therefore, we must also learn to apply report making to individuals or families.
There can be many household financial statements, the most basic ones are the balance sheet and the income and expenditure statement. To be able to manage money, the most basic thing is to learn to read statements and understand the impact of each investment on your wealth. The second is to be able to make a balance sheet and income and expenditure statement to make your life simple and clear and have more basis for financial management.
In layman's terms, on the balance sheet, how many assets a family or individual has, what assets they are, how many liabilities they have, which liabilities they are, how much net assets they have, and what their composition is, are all clearly reflected. Chu. The income and expenditure statement can help you manage your income and expenses, record your daily income and expenses, regularly check whether you have unnecessary expenses, and plan your future income and expenses in advance.
The balance sheet "Household Monthly Balance Sheet" is a statement that reflects the basic financial status of the family as of the current date. It can be known: 1. The composition of family assets and the relationship between creditor's rights and debts; 2. The family's financial strength and development trend, solvency and changes in asset structure; 3. The main information required for family asset diagnosis; 4. Total household net worth.
The balance sheet describes the financial status of the company at the time it is released, just like we take a camera and click the shutter on a high-speed vehicle, except that the "vehicle" here is the flow of funds. . We get a static picture that only describes the situation at that time, that is, the information is time-sensitive. If a person or a family has a vague idea of ??how much property they have, how can they manage their finances? Don't think I'm being serious. In fact, many people don't know the exact amount of their wealth. Therefore, everyone must learn the balance sheet well.
Generally speaking, the balance sheet has the following functions:
1. Reflecting assets and their distribution
The balance sheet can reflect information about the assets owned by a family or individual at a specific point in time and their distribution. It indicates how much and what assets a family or individual owns at a specific point in time. For example, how much are the current assets, how much are the fixed assets, how much are the long-term investments, how much are the intangible assets, etc.
2. Shows what debts a household has and when it will be repaid
The balance sheet shows how much debt a household has at a specific point in time, when it will be repaid and to whom. If it is a current liability, it must be repaid within one year; if it is a long-term liability, the repayment period can exceed one year. Therefore, it is clear from the liability sheet how much is owed to whom at a specific point in time and when it should be repaid.
3. Reflect net worth and the reasons for its formation
The balance sheet can reflect the net worth owned by the family at a specific point in time and the reasons for its formation. Net assets are actually a kind of equity, or another name for owner's equity. At a certain point in time, assets should equal liabilities plus equity, so net worth is assets minus liabilities.
It should be noted that in a company's balance sheet, there is such a rule: it can be said that assets are equal to liabilities plus shareholders' equity, but it can never be said that assets are equal to shareholders' equity plus liabilities. They have fundamental difference. Because accounting rules place great emphasis on putting others before yourself, that is to say, the company's assets must first be used to repay debts, and the rest, no matter how much, belongs to the investors. If we talk about owners' equity first, we put ourselves before others, which is not allowed under accounting rules.
This is also calculated in the household balance sheet.
Contents of the balance sheet:
The balance sheet includes both household assets and liabilities.
1. Family assets:
There may be many ways to classify the classification and content of family assets. Such as classification according to the liquidity of property: fixed assets, current assets. Fixed assets refer to physical assets such as houses, cars, and items; current assets refer to cash, deposits, securities, funds, and profits from investment income. The so-called liquidity refers to the ability to respond to emergency payments or investment opportunities in a timely manner, or simply the ability to realize cash. Among them, fixed assets can be divided into investment fixed assets and consumer fixed assets. Such as real estate investment, gold jewelry and other physical objects that can generate income; consumer fixed assets are necessary daily necessities for family life. Their main purpose is to be used by your family members and generally do not generate income (and can only depreciate and depreciate). Such as self-occupied housing, cars, clothing, computers, etc.
Household assets can also be classified according to the attributes of the assets: financial assets (financial assets), physical assets, intangible assets, etc. Financial assets include liquid assets and investment assets, and physical assets include houses, cars, furniture, computers, collections, etc. Intangible assets are intellectual property rights such as patents, trademarks, and copyrights.
According to the classification method in the Jiaqitong financial management software, assets are classified as follows:
Cash and current deposits (cash, current passbook, credit card, personal check, etc.)
Time deposits (local and foreign currency certificates of deposit)
Investment assets (stocks, funds, foreign exchange, bonds, real estate, other investments)
Physical assets (household items, houses, cars)
p>Debt assets (debts, trusts, entrusted loans, etc.)
Insurance assets (basic insurance in social security, other commercial insurance)
2. Household debt
Household debt refers to the family's borrowed funds, including all debts, bank loans, bills payable, etc. owed by all family members to non-family members.
Household liabilities are divided into short-term liabilities (current liabilities) and long-term liabilities based on the length of maturity. There are generally different ways to determine how long the distinguishing standard is. Liabilities that are due within one month can be considered short-term liabilities, and liabilities that need to be paid every month for more than one month or for many years are considered long-term liabilities. For example, the monthly repayment of a mortgage loan is long-term debt. Another way to classify debt is to limit it to one year. Liabilities due within one year are short-term liabilities, and liabilities over one year are long-term liabilities.
In fact, the specific distinction between current liabilities and long-term liabilities can be determined based on your own financial cycle (payment cycle), such as weekly, monthly, bimonthly, quarterly, annual, etc. distinguish.
Household debt can also be classified according to the type of debt.
Jiaqitong financial management software is classified in the following ways, as follows:
-Loans (housing loans, car loans, education loans, consumer loans and other bank loans)
-Debts ( Debts, accounts payable)
-Taxation (all taxes payable such as personal income tax, inheritance tax, business tax, etc.)
-Accounts payable (short-term bills payable, such as rent, water, electricity, etc.) Interest payable, etc.)
The following is the format of a balance sheet: Family Monthly Income and Expenditure Statement Year and Month Asset Amount (Yuan) Liabilities and Net Asset Amount (Yuan) Financial Assets Current Assets Investment Assets Annuity Insurance Assets Physical Assets Assets Cash and demand deposits Time deposits Lending Other bond funds Stocks Commodity futures Financial futures Foreign exchange dividends, universal, investment-linked insurance Cash value Real estate investment Industrial investment Other annuities and pension accounts Life insurance, health insurance Cash value Other owner-occupied houses Cars High value high Tools, appliances, high-value electrical appliances, equipment, high-value clothing, jewelry, gold, jewelry, collectibles, other current liabilities, short-term arrears, credit cards, credit card overdrafts, other long-term loans, housing loans, car loans, consumer loans, student loans, investment loans, private borrowings, other total liabilities, net assets Total assets, total liabilities and total net assets. How to pay off debts so as not to become a "rich man"
(1) Keep financial records and establish your own balance sheet: How much are the liabilities? Repay the debt yourself. How capable and fast is it? (2) Calculate the credit repayment ratio. Credit repayment ratio = monthly repayment ÷ monthly income. When most of your monthly income is used for repayment, your debt has turned on the red light. .
(3) Record the monthly repayment date. You must pay back the money on time, otherwise it will affect your credit record and even incur penalty interest.
(4) Avoid paying only the minimum payment, as the debt accumulated in installments will be staggering; (5) Do not repay debts with debts, tearing down the east wall to pay for the west wall.
(6) Plan to pay off debts first, then plan expenses. Make it a rule to use part of your income to pay off debts every month, and use the rest for expenses, not the other way around.
3. Valuation of Assets and Liabilities
Assessing value is a very controversial matter. But as a family, there is a relatively simple approach, as you won't be selling most of the assets, so only you are sure of their value.
Assessing value must be based on two principles. One is to refer to market value. The so-called market value is the price that others are willing to pay for an asset in a fair, relaxed and calm transaction. The second is that the assessed value must be determined at a certain point in time. It can be the end of last month, the end of last year, or any day, because asset values ??change over time.
The value of a house is relatively difficult to assess. As a family's largest asset, you can only refer to the transfer price of similar houses in the local area. There are also things that are more difficult to estimate, such as collections of jewelry, antiques, calligraphy and paintings, etc., because the market value of these assets is more elastic. If you are not an expert in this field, you may need to help outsiders.
The value of the loan in the liability is the amount remaining owed as of the time of appraisal. If it is a mortgage loan and the loan is repaid in installments and the time is relatively long, such as more than 10 years, the proportion of loan interest may be quite high. Should these huge amounts of interest be included as liabilities? Generally not, because it is a liability (interest) incurred later and does not need to be calculated in advance.
The purpose of preparing a balance sheet is to make future decisions, but sometimes when making a long-term investment, you must take into account the dynamic changes in human resources.
When a craftsman starts learning skills at the age of 15, his income will continue to grow within a few years as his skills improve, but after a few years, it will be difficult for him to make breakthroughs. developed. If the same amount of time is spent studying in college, it may not be until the age of 25 that you can start to have your own income. The gap between the two in these ten years is huge, but after that, the latter will have a greater income, almost Years later, revenue will exceed the former.
Therefore, we must always pay attention to the human capital of individuals/families when making decisions.
For example, a borrower can extend a much greater line of credit to a young professional with few tangible assets than to a construction worker with the same net worth, because the value of the intangible human capital provides some form of assurance. .