(Derived from http://ezinearticles.com/ author, Jay Tracey, with my comments in italics)  In these interesting and stressful economic times, self evaluation of one’s financial situation is always merited. Many of us spend some (time) analyzing investments strategies as part of our overall strategy to meet whatever goal you have set for yourself, whether that is retirement or the personal jet you would like to someday own. (In my opinion, a personal jet is a huge waste of money) We spend a lot of time on our investments, analyzing company financials, strengths, weaknesses, buy and sell points (including technical indicators, i.e. momentum). Depending upon how diligent your analysis (become an expert in personal and corporate financial due diligence), you may pour through significant amounts of financial data. Most of us closely review the balance sheet to understand the company snapshot of finances (among many other fundamental analysis indicators, i.e. EPS, P/E, Price to Book, ROA, ROE, etc).

But a lot of us, while feeling good about our investment planning, let our personal finances slide a bit to the right (we see this quite often, even with the “astute”). So the question is: Would You Invest in You? It occurred to me that we can analyze our financial situation in a very similar manner that you would when analyzing your latest hot stock tip. We do not look at ourselves as profit centers, but in the end, that is exactly what we are (see my tagline to this website – “Run Your Life like a Business”). Your weekly income becomes revenue; your expenses are the cost of goods sold, and so on. In fact, I would propose that it would be an interesting task to lay your personal finances into a professional balance sheet (see sample net worth template PERSONAL FINANCIAL STATEMENT).

Essentially, when you apply for a large loan, this is what financial institutions do to assess the overall risk in lending (I had a reader of this site ask me to help them put together a Net Worth statement, which the bank was requesting for a loan.  This person did not know what a Net Worth statement was, nor how to construct one.  He/she was very surprised at the outcome; it was negative personal net worth.  Would yours be the same?) We rarely see, or think about this, but that is a major part of a loan evaluation. Put yourself to the test. It may be an interesting task that will very clearly outline areas that need your attention. Without going into the mechanics of a balance sheet, I can direct you to an example easily found on one. Google it.  (see template above) Check out any stock analysis section (Yahoo! Is a good free way to conduct this analysis). All of the categories in the balance sheet are applicable in some way. You may have to do some averaging, like for cash on hand, for instance. But otherwise, it is all there.

Long and short term assets and liabilities, the implication of liquidity (generally short term is considered less than a year for liabilities – i.e. your credit card would be a short-term liability and your car and/or home loan would be a long-term liability). You will have to decide the value of your personal property…be careful not to place a high value on this. Remember, this is the amount that you would be able to sell on the open market, and one person’s gold tends to be another person’s junk. (Your car can be easily valued at kbb.com – use the private party value, not the retail value.  For your home, it would be best and most accurate to obtain an official home appraisal)

At the end of the day, you will have a stunning snapshot of where you stand financially. Use it like an investor. Answer the question. If you determine that you would not invest in yourself after reviewing your balance sheet, take action to improve. You will know right where to start.

Below are some additional thoughts that may go into this analysis.

1. Income
   • Salary
   • Bonus
   • Other sources, i.e. part-time income
2. Income increase Y-o-Y
   • Similar to revenue increases in stock market. Has your income increased from the prior year
3. Net Income (Compensation minus Expenses)
   • Do you spend more than you make
   • Monthly and Annual analysis
     • Salary/Bonus/Other minus Expenses
4. Expense Analysis
   • Categorization of expenses
   • M-o-M variance analysis
   • Budget vs. Actual
   • See budget template here – household monthly budget
5. Balance Sheet (Net Worth)
   • Assets vs. Liabilities
   • Show example
     • Positive
     • Negative
   • Increase/Decrease Y-o-Y
   • PERSONAL FINANCIAL STATEMENT
6. Momentum (similar to stock momentum)
   • What are you doing right now to make your situation better or worse?
     • Did you recently add debt (car)
     • Did you recently go on a large vacation
     • Did you recently lower your income
     • Did you recently lower your expenses per month
     • Are you saving more/less money monthly
     • Fun factor – have fun, but stay reasonable and within your individual and/or family means!

Happy Hump Day!

MPF