Managing Expectations; Personal Quarterly Earning Reports

Managing Expectations, Calvin's Way.

Life is much easier when the pressure is off your shoulders. You hear it in sport commentaries when the underdog will have a go since they don't have the must-win expectation tagged to the favorites. So, what's best when you set your budget? Under-promise. Over-deliver.

There are two personal financial statements in the quarterly personal finance report :
1. Balance Sheet which will show your net worth, whether you're increasing in wealth or becoming poorer;
2. Income Statement which is your realized monthly budget.

Companies have quarterly financial reports to release, and we should too. Our earnings announcements should be in the months of March, June, September and December where we take a picture of our financial condition for the quarter and reassess our goals. After every release comes expectation of how the company (you) position itself for the next quarter. Personal finance is pretty predictable in normal circumstances; we will get your income bi-weekly or monthly. If we set our annual goals and break it down quarterly, we should at least quarterly fulfill what is expected of ourselves. But, take a step further by outperforming on a quarterly basis in cutting our cost/expenses and constantly increasing our net worth. We should have high expectations of ourselves to perform better if things are going well economically.

Can we meet our own target performance? If we can, then it was expected. If we under-perform, investor (your) confidence lessens. If we over-deliver, it's good. Management (you) get a bonus of becoming richer due to good performance.

The awesome thing is, this can be a family event like how companies have conference calls. We can hold an earnings announcement and conference calls as a family. Children should very much know whether their parents are in debt, since debt is passed down to children.

Are you an able manager to push yourself and your family to prosperity? Of course you are, if not then who else? I guess the one expectation that you can't manage is your own. Personal finance is a must-win game.

Because You're Worth It

Image source www.jokeroo.com

I am thankful that the process of marriage doesn't require an assessment of my net worth. What a horrifying experience that would make for me to be dissected financially. Especially since I was pretty much worthless and my then-future-wife-to-be was a doctor, I can safely say that I made a pretty good deal (ha!). Cutting through the chase, net worth is assets minus liabilities.

The current median (the middle value, not average) net worth is $57,000 (2010 dollars) according to a research by NYU professor Edward N. Wolff or $66,740 according to the Census Bureau in 2012. What we can assume from the number is many households in the USA are able to accumulate wealth, $66,740 to be exact. In order to accumulate wealth, our assets need to be greater than our liability.

Besides net worth, we are talking about the balance sheet. The personal balance sheet is a snapshot of your financial position at a certain point in time that consists of assets, liabilities, and net worth. Assets are what you own, liabilities are debts you owe, and net worth is how much is left if all assets are sold and debts repaid. If you are facing bankruptcy and all your assets are liquidated to repay debts, it is a rough estimate of how much you can get for all assets (though in liquidation, sometimes that number is further below).

In step 4, we have established that the Chief Financial Officer (CFO) of our finances should be ourselves. A captain of the ship must know where the ship is currently positioned, before sailing the ship toward the final destination. Step 8 is to identify our starting point, knowing our net worth. First we need to gather all information regarding assets and liabilities. Second, the job of a CFO is to increase net worth.The only way we can increase our net worth is by increasing our assets and decreasing our liabilities. You can visit FinancialLiteracyMonth.com for a quick calculation of your net worth. You can also download a file I downloaded from Microsoft templates and plan to continually expand on, here for Libre, or Excel. You can download and install Libre for free if you don't have Excel.

Remember to spend on yourself first by increasing your assets so that you increase your net worth. Why? Because you're worth it.

So fear Allah as much as you are able and listen and obey and spend; it is better for your selves. And whoever is protected from the stinginess of his soul - it is those who will be the successful.

64. Surat At-Taghābun (The Mutual Disillusion;16) 

We're Not So Different, Corporations And I

Image from realizedworth.com

I got a big wake-up call while going through my education in finance. Individuals are, in many ways, companies. Companies have financial statements and individuals have personal financial statements. Since I've learned how to analyze financial statements, it's frightening to know that I'm worth very little and I'm not an attractive "company". Damn you finance degree! I know now that I have not been managing myself very well. I've not been investing in myself and increasing the value of Me LLC/Inc.

There are two personal financial statements:

1. Balance sheet is your assets and liability. What you own and owe, showing what you're worth.
2. Statement of cash flow is your inflow of cash minus outflow

Companies have income statements, but since companies revenues are from sales of product/service and most individuals revenues are wages, a personal cash flow statement and personal income statement would look very similar. Basically, it is the realization of how we carried out our spending plan/budget.

Step 4 in moving toward financial wellness is making the decision that YOU are the Chief Financial Officer of YOU LLC/Inc.

The responsibilities of a family CFO are:

1. Planning and creating goals to prepare the family for future conditions. 
2. Presenting, and reporting of accurate financial statements.

If you are married, a board (family) meeting should be conducted and simply explained (to spouse and children) on what actions are necessary to meet financial goals. Empower your children by asking their help on making a snazzy powerpoint presentation and even opinions on what the family can do to meet goals. Of course, transparency is very important, you can't hide your spending from your kids!

What we can take from step 4 is that, in the end, we are responsible for our wealth. Our actions today affects our financial future. Believe in tomorrow and the future.

Whoever disbelieves - upon him is [the consequence of] his disbelief. And whoever does righteousness - they are for themselves preparing,

30. Surat Ar-Rūm (The Romans; 44)