Three Important Financial Statement: How to Examine and Understand It

Now that your most important financial goals have been defined and you have a basic idea of what it will take to accomplish them, the following three financial exercises will help you determine your overall financial condition:

Completion of a Personal Income Statement. The income statement is simply a listing of all of your income and expenses. It enables you to see what you need to live on and how much you can allocate to put savings and investments in order to accomplish your goals. Tracking and cut down spending habits will help you formulate judgments about what is most important to you and when to shift your priorities.

Completion of a Personal Balance Sheet. This is an inventory of your financial resources. It shows what you have to work with as a starting point in the planning process.

Developing a Budget. This is a projection of future expenditures. It will help you control consumption (day-to-day living expenses) and teach you to save money.

Once you have completed a personal income statement, balance sheet and budget, you should review your financial goals to determine if they can be accomplished with your current financial resources.

Completing these three financial exercises also has some additional benefits. The information you gather can serve as an aid in filling out credit applications, settling an estate and/or preparing your income tax return.