Financial Literacy – Handle Personal Finance Like a Business

Profitability is one of the primary goals of a business. One could argue the same thing for a family or individual. A company has three standard financial statements used to assess their standing, Income Statement (aka Profit & Loss, P&L), Balance Sheet, and Statement of Cash Flows. Each statement provides different insight into the current health of the company financially. Why don’t we as families and individuals approach finances the same way as a business?

The primary answer to why we don’t approach finances the same way would be that it is overkill. I’ll admit, it is. Every family or person doesn’t need all three statements, instead my proposal is to modify the three into one statement to assess your financial health. The statement should include your take-home pay (monthly and annual), bills (monthly and annual estimations), investments/savings, and frivolous expenses (Me Money). Take-home pay = Bills + Me Money+ investments/savings. The two sides should be equal when completed. Maybe call it the Financial Freedom Statement, or Personal B/S?

The name of the statement is a work in progress, but the logic is valid and helpful. Businesses spend obscene amounts each year on keeping track of financial information. My bank account doesn’t allow for the spend on this, so I have to input time and effort to track this independently. Luckily, the information is substantially smaller than a Fortune 500 company. Tracking can assist in where you are spending too much or assist with analysis of how you can correct your finances. Take a deeper look at how you run your finances and attempt to run them like your favorite business. A proposed template can be found below. 


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