Second post, second rule: You have to track your Financial Situation.
Let’s start with this new post talking about accounting.
Yes, it is boring I know, but since we are not a company we can more easily keep track of our situation.
I write assuming that you don’t know anything about accounting and then I’ll explain roughly what you should keep track of in your excel sheet, app on your phone, notebook or whatever you like best.
What do you own?
A company keeps track of all its assets and liabilities in the balance sheet.
Assets: A resource with economic value that you own with the expectation that it will provide a future benefit.
What can we include in assets:
Ownership: apartments, garages, houses or other
Financial assets: ETFs, stocks, bonds,
Cash: in the bank, cash, (under the mattress😅)
Liabilities: Something you owe, usually a sum of money.
And here what? Well all that represents an outflow of money.
Mortgages, debts, loans, subscriptions or whatelse.
Companies usually keep track of Equity, but in our case we will call it Net Worth.
Net Worth = Assets – Liabilities
Simply put, it’s a single number that measures your wealth.
(If you have no liabilities, your assets are your Net Worth)
If they seem complex speeches to you or you want to learn more about the topic, here is the always excellent and indispensable page of Investopedia.
Cash In and Cash Out
Second thing to do is keep track of your movements. Not being a company, we can group the income and expenses in a single sheet and keep track of them in an incurred way.
Companies usually do it in an accried way.
The difference?
incurred refers to when the business owes money as a result of a transaction, while accrued refers to the practice of recording financial transactions as they happen.
Trust me you have to know every transactions to track better your financial situation.
There are now a thousand applications that can help you keep track of your expenses by category. If you’ve never done it before, monitor yourself a few months and see where you spend the most and if you can file it.
P.S. Bonus site for you
After you calculated your Net Worth and your income you can come here to compare with your country and world people.