Poor Student No More

How to make your own financial statement:

This is going to be the very, very basics of making your own personal financial statement.  Reading Rich Dad, Poor Dad inspired me to do this, and though it is an extremely simplified version of the common financial statement prepared by an accountant, it is a simple reminder of your goals and how to get there.

There are only four simple categories that you should absolutely list in your first financial statement: Income, Expenses, Assets, and Liabilities.

Income: List all income that you receive monthly from your work.
Expenses: List all of your monthly expenses.  These are the things that you must pay money for each month like rent, utilities, food, alcohol (if you are the average college student), cell phone bill, etc.
Assets: Things that put money into your pocket. Should be forms of passive income that are secure.  Example: Poor Student No More.
Liabilities: Things that take money out of your pocket.  A mortgage or rent, credit card bills, fruit of the month club.

These are EXTREMELY simplified definitions, but they certainly keep it simple and get the job done.  I’ve found that keeping it simple keeps me focused on my ultimate goal: grow my assets larger than my liabilities (in monetary value) and make my passive income greater than my expenses.

So, put these into four columns and start listing your items with descriptions and amount ($).  Total up the values for each column.

Next, make a prospective financial statement for exactly 1 year after.  What do you want this sheet to look like?  Be sure to keep it realistic though! Work with what you have, but don’t sell yourself short either!

Post both of these statements somewhere where you can see them every day — your wall, mirror, in your closet, on the fridge — and every month make updates on your progress.  As you go along, you’ll find out what works, what doesn’t, and how to optimize your progress.

Don’t freak out if you don’t reach your goals in 12 months! Keep working and figure out why you didn’t hit that goal.

After you reach your 12 month financial plan goals, start setting longer term goals — 3 years, 5 years, and 10 years.  These will be less detailed, but very worth it in the long run!

Peace, love and loans,

Jess

Assets and Liabilities

I recently finished reading Rich Dad’s Guide to Investing, the follow-up to Rich Dad Poor Dad that provides an in depth look into the worlds of business and investing. The book provides substantial and valuable insight into not only the philosophies of the rich, but specific practices and tools to use as well.  I highly recommend this book to those who wish to change their way of thinking and move toward a life of financial freedom and independence.

One of the greatest lessons I learned from Rich Dad’s Guide to Investing is that you do not have to acquire assets through purchasing them.  You should, in fact, learn how to create your own assets.  This got me thinking of my own assets and liabilities on my own personal financial statement.  My assets column doesn’t really have anything in it, and while I stared at that blank column, I felt absolutely worthless.

So, I decided to start thinking about the potential assets I could create and how I could turn the ideas into realities, no matter how crazy or outlandish they seemed. I also found during this process that I do have assets now that I should list.  I started filling my assets column and it now looks like this:

Education - knowledge of international relations, conflict resolution, and development
Passion
Work ethic
Perseverence
Creativity
PSNM (Poor Student No More)

The first six are not putting money into my pocket as of now, but I always want to remember what my REAL assets are. Those characteristics will be the driving force behind my financial success.

My suggestion is to look at your personal financial statement at least once per month and each time, have a short brainstorming session in which you write down ideas for creating assets. Most importantly, you do not need an already existing amount of money to transfer ideas into tangible assets. Use your intellect, experience, creativity and character to find a way to make it happen.

My liabilities column heavily outweighs my assets column in terms of monetary value, but I know that this is only temporary. Don’t sell yourself short and realize what your true assets are — then take it and run with it.

My goal by May 2010 — grow my assets column bigger than my liabilities.