The Balance Sheet

I spend a lot of time organizing and evaluating data in many areas of my life. This is especially true when it comes to finances and our financial goals. One of the most powerful tools in this regard is the simple Balance Sheet. The Balance Sheet lists all assets, then lists all liabilities, with the bottom line being your net worth. This is the way I break it down into categories.

Assets

Total Cash and Equivalents

  • Checking Accounts, Venmo and Paypal

  • Savings Accounts

Total Short Term Investments

  • Emergency Fund

  • College Savings Account (for Ryan and Katie)

  • Other Savings Accounts (for specific purposes like saving for a car replacement)

  • HSA account broken down into the investment portion and the spending portion

  • 529 college accounts for the other kids

Total Long Term Investments (Retirement Accounts)

  • Taxable upon withdrawal

    • 501K accounts

    • 401K accounts

    • Traditional IRA accounts

    • Traditional TSP account

  • Non Taxable upon withdrawal

    • Roth TSP account

    • Roth IRA accounts

Total Long Term Assets

  • House

  • Cars

Add these all together for the Total Assets

Liabilities - the objective is to make this list as small as possible

  • House

  • Any vehicle loans, student loans, or the result of any other previous poor decisions

Add these together for the Total Liabilities.

Net Worth

Subtract Total Liabilities from Total Assets to obtain my net worth. This is an important figure for many reasons, but the main value in going through this process is to truly understand where I am at financially. I might make a lot of money, but that does not mean I am wealthy. If my liabilities are larger than my assets, I am poor, no matter how big my salary is. The opposite is also true. I could have a large Net Worth even if I made a small salary. It all depends on how well I build my assets and how well I avoid liabilities. I go through all my accounts about once a quarter to update my Balance Sheet. I also use this tool when evaluating purchases we are considering making. And of course this is a critical thing to know as I consider retirement in the future. My net worth is going to determine when I can retire and what that retirement is going to look like.

FinanceChris JohnsonComment