The Importance of Bringing Balance (Sheets) to Your Financial Life

So you’ve set some financial goals and started tracking your expenses. You’re well on your way to taking charge of your personal finances in 2014. The final piece of the puzzle involves creating a balance sheet.  

Why you need balance

The purpose of the sheet is to get you thinking comprehensively about your financial life and letting you know where you stand financially.  In addition, taking a hard look at your situation will help you clarify your goals and keep you motivated in pursing a better financial life.

A balance sheet weighs your assets (those things that you own that have value…car, home, retirement account, etc.) against your liabilities (student loans, credit card debt, mortgage, etc.) The outcome results in your net worth.

This exercise, much like tracking your expenses, gives you a great way to measure improvements that you make throughout the year. For example, if you see that your net worth has increased from $2,000 to $8,300 within the year, you know that you are gaining ground financially, even if you haven’t amassed a lot more cash in your emergency fund or made a killing in the stock market.

How to create balance

There are numerous examples of balance worksheets online. But of course I enjoy creating my own using Excel.  Feel free to download and tweek it as you see fit. The sheet can at least serve as a starting point for itemizing the things in your life that bring you value and those things that subtract it.

Something a little unique to my balance sheet is having my FICO score at the bottom. I love tracking my FICO score every month, in addition to my net worth, to provide a complete picture of my financial situation.

I know tons of advisors who would say paying for a FICO monitoring service wastes money. And I would probably agree. But I can think of worse things to splurge on.

Don’t judge yourself on where you are but on where you’re going.

Don’t let a low or even negative number discourage you. My net worth was negative for eight years because of my massive amount of student loan debt.  The benefit of the sheet comes from showing you the path to building wealth and increasing your net worth.