| Personal Financial Statements |
| By Rienzie P Biolena, RFP® |
| PAMI Senior Financial Advisor, CIS |
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| In order to effectively move towards any goal in life, it is always wise to look where one is at the present: the circumstances, tools for disposal, what already exists, and what needs to be worked upon. |
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| The same is true in finance. Every company, organization or association has their own financial statements that give them a snapshot of where they are and from there, form their own strategies and tactics to achieve future end-goals. These financial statements serve as their bedrock, enabling them not just to analyze current resources, but also give them a tool in reviewing how they have performed in the past. In fact, any organization that aims to better grasp its business, steer it, and make it grow would have these statements. |
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| If these tools are used by businesses, so can a person use them, too, with the same benefits. In fact, it is strongly recommended that each has his own Personal Financial Statements— or Family Financial Statements in the case of households. These give them a handle on where they right now—financially, how to manage their resources, and aid them in financial goal-setting. But given their nature, they would be much simpler than the corporate counterpart, and comprise of just two simple statements: the Statement of Assets & Liabilities and the Cash Flow Statement. |
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| Statement of Assets & Liabilities. This statement is divided into two parts. The Asset part lists all of your resources at the moment which includes: |
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Your Cash (on hand or in bank savings/checking accounts)
Time Deposits
Investments (mutual funds, bonds, or stocks, pre-need plans, insurances, educational plans)
Real Estate
Vehicle
Jewelries
Other Assets |
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| The Liabilities, on the other hand, compose of the following items: |
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Credit Card Balances
Personal Loans
Housing Loan
Auto Loan
Other Loan Items |
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| The Statement of Assets and Liabilities provides the picture if you would be rich in assets—which is desirable—or laden with debt. To determine this, just subtract your liabilities from your assets. If the amount of your assets exceed that of your liabilities, then you would still have remaining resources after all your debt has been paid (a net asset scenario); otherwise, you would be buried in debt (a net liabilities scenario). We would all want to be in a net asset scenario, and so we should strive to accumulate assets, rather than liabilities. |
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| The Cash Flow Statement. This statement shows two parts: the income and expenditure items, which are further itemized and broken down. |
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| Income items are: |
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Salary
Commissions
Rental Income
Other Income |
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| Expense items, on the other hand are split into two main categories: Standard Expenses and Discretionary Expenses. Standard Expenses are those that are required parts for daily living and stay relatively the same each month such as: |
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Taxes
SSS Premium
Philhealth
Insurance Premiums
Car Facility Payments
Utilities
- Electricity
- Water
Food (Grocery Items, Food Expenditure at Work)
Car
- Gas
- Toll Fees
- Maintenance Fees
Medical Expenses
Household Wages (Maids, Drivers)
Miscellaneous |
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| Discretionary Expenses, on the other hand are those that are optional and varies from month to month. These would typically include: |
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Travels & Vacations
Clothing
Donations to Charities
Eating-Out
Entertainment
Sports/Hobbies
Gifts
Others |
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| Once all income and expenditure items have been laid out, simply subtract the total expenses from the total income to determine if you are living within your means or out of it. Having this statement helps you to plan out your budget, as well as reduce some expenditure items that are really not needed, if not altogether avoided. The money saved from cutting some expense items would typically be reallocated to pay-off existing debts or increase assets such as investments. |
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| It is generally recommended that the Statement of Cash Flow be done on a monthly basis. This ensures constant monitoring of income and greater control over expenses. On the other hand, the Statement of Assets and Liabilities can be done at least semi-annually to monitor the increase or decrease in total assets or liabilities. |
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| Making these financial statements is a start towards financial freedom. Prior to doing it, you may have a rough idea of where your assets are, your liabilities, or your cash flow movement. But putting them in writing would let you see the details and give you a better handle over your financial life. It is like being able to have your hands on the steering wheel and take control over your own car. |
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| Remember that in order to make a meaningful movement towards your financial goal, you should face the truth of your present circumstances. And these statements give just that—the hard facts and numbers—things that you will need to work with, on, and up to achieve your financial goals. |
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Rienzie P. Biolena, RFP® is one of the pioneering registered financial planners in the Philippines, having taken up the first RFP Program in 2005. He is a senior financial advisor in Philam Asset Management, Inc., a former banker, a freelance local & international writer and resource speaker on personal finance. |
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