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Monitoring Your Financial Progress with an Income Statement


Taking control of your financial future is a process.  And as with any process, it is important to monitor your progress and measure the results.  Doing so will help you understand how well you are doing and to determine if the financial strategies you are using are working.

A balance sheet provides a business with a snapshot view of its financial status.  An income statement measures progress.  You should do the same with your personal finances.

Preparing a Balance Sheet

Preparing a personal balance sheet annually should be part of your financial management.  You simply add up all your assets and subtract your liabilities to determine your net worth.

When preparing your personal balance sheet, separate your investment assets into stocks, bonds and cash categories.  Understanding your personal “asset allocation” will help you organize your finances and your monitoring of them.  You can also find examples in almost any financial planning book or online.

It also makes sense to track changes from year to year to monitor your progress and determine if you are on track to reach your financial objectives.  Here is a chart that provides a basic format you may want to consider using.

Category 2011 2012 2013 2014 2015
Cash $ $ $ $ $
Equities $ $ $ $ $
Fixed income investments $ $ $ $ $
Real estate $ $ $ $ $
Personal assets $ $ $ $ $
Other assets $ $ $ $ $
Total assets $ $ $ $ $
Less:   Liabilities $ $ $ $ $
Net worth $ $ $ $ $


Measuring Your Results and Next Steps

The other step, and the one that is more difficult, is determining how well you are doing.  Determining your “absolute results” or if your net worth has increased from year to year is easy.

If your results meet your expectations, keep doing what you are doing.  If your results don’t measure up, you may want to take actions to improve them.  This could include changing your stock selection process, urging your stockbroker to help you make better decisions, giving the responsibility to a professional investment advisor or choosing a different mutual fund.

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