Finance Like an Adult, In 50 Words or Less
Developing your personal income statement is the toughest task you will face in your personal financial journey. Feel free to review my prior posts to learn how to create and calculate your personal income statement. Once you have this information, you can reflect on the changes that you want or need to live a more intentional financial life.
Finance Like an Adult
Simple solutions are your best option to solve complex problems. Now that you solved the problem of understanding your personal finances, it is up to you align your finances to your intentional life.
If you want to start with a high-level summary, please skip to the end and read the 50 Word Takeaway before continuing.
The final step to truly gain control over your finances is a self-assessment. Once you complete your initial personal income statement there are two factors to assess:
1. Maintain your personal income statement and assess it for accuracy
You should be comfortable with your system for developing your personal income statement, however, your lifestyle will change over time. Therefore, your system will need to change as you do. Be sure to create a system of checks to ensure that your net income amount is correct.
There are several changes to be aware of to properly maintain your system. The most common area to change will be your intentional spending. Your priorities will change over time and your system must keep track of that.
Another area that will likely change is your safety net. The amount in your safety net may need to be larger or smaller given the context of your life.
The final area to focus on is your investments, keep in mind that your asset allocation should become more conservative as you move closer to your investments goal.
2. Project any major changes coming to your life
The next step is assessing whether there are be any major financial changes coming. These relate to your total income and expense line items. Ask the following questions:
· Is there anything that will impact your future total income?
· Will you be starting a new job or side hustle soon?
· Will you be getting a raise or taking a pay cut?
· Are you in line for a promotion any time soon?
· Is there anything that will impact your future total expenses?
· Are you contemplating any large purchases? (e.g., a house)
· Are you about to finish paying off large amounts of debt?
If the answer to any of these questions is yes, you need to assess your current financial lifestyle to see if it is sustainable. If you project any potential unsustainable changes based on your personal financial statement, adjust your lifestyle in the short term to avoid a net loss.
Once you create a system to track personal income statement, assess your situation at least quarterly. Living a sustainable financial life allows you the luxury of not micromanaging your personal financial income statement.
50 Word Takeaway
Focus on two factors to maintain your personal income statement. First, ensure that your income statement is accurate and captures all of the income and spending in your changing life. Second, project any impactful, future financial decisions. Utilize your personal income statement to prepare for, but not micromanage, your life.
Please reach out to firstname.lastname@example.org with any questions or suggestions for other personal finance topics to cover.