Balance Sheet

What’s your household balance sheet like?

You wouldn’t expect a business to run without the CEO keeping a close eye on the numbers.  Having good and regular oversight of the company’s financials is essential. After all, good decisions require good information.

Is it any different for people when it comes to household finances?

Well, it shouldn’t be.

So just as accountants prepare a business balance sheet, we complete household balance sheets to keep our clients informed, enabling them to make good decisions as the CEO/Managing Director of their own household.

As the late great management consultant Peter Drucker once put it,

“What gets measured gets managed”.

Not only does the balance sheet show current assets and liabilities on one page and calculate net worth and net investment wealth, it also shows where you have come from, providing a greater sense of your financial progress over time.

In our long-time experience as financial advisors here in Perth, we found that most clients when they first begin working with us, have never summarised their total assets and liabilities or calculated their net worth.  The household balance sheet that we prepare is often the first time they have had a complete perspective of their total financial position.

The household balance sheet brings everything together, including the family home, vehicles, investment properties, business assets, superannuation and any investment or personal debts – everything summarised on one page.

It would be fair to say that this is a relatively simple exercise to do.  Anyone can do it with their financial information at hand and a basic working knowledge of spreadsheets.  We know however that having a regular structured review with our clients where we update their balance sheet, enables them to take important time out from their daily life to take stock of their financial position and reflect on the progress they have made.

This is something that our clients have told us is very worthwhile.  By nature, we all tend to focus on the present and the immediate future.  It is very helpful to be able to look back upon the previous years to see how much your financial position has changed.  It brings a greater sense of financial satisfaction when you can see in detail, the growth in your household wealth over time or the prolonged sustenance of your financial capital in retirement, as the case may be.

For the same reasons, this is something we also do for ourselves personally.  Like our clients, we realise that knowing where you are financially and where you have come from, is very helpful when looking ahead and making plans for the future.

Image credit: A Teeter Totter Love Story 1 by Jake Stimpson is licensed under CC BY 2.0 

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