Proverbs 27:23 tells us, “Know well the condition of your flocks and pay attention to your herds.” Most of us are no longer tending flocks and herds, but we do need to stay on top of the financial “flocks and herds” under our care.
And there are a couple of basic tools that will help us do just that. A Spending Plan (AKA a budget) enables you to monitor your income and your outgo. When you use a spending plan, you know if the month and year end with a surplus or a deficit. And we’ve talked lots about having a spending plan and how important it is to your financial well-being (check our previous blogs).
Another important tool to monitor your financial well-being is a Financial Statement, which is simply a list of all your assets—everything you OWN, and all your debts (or liabilities)—everything you OWE. It gives you a snapshot of how healthy your financial position is.
The first part is what you OWN. These are your assets and it includes things such as cash on hand; checking accounts; savings and investments; stocks; bonds; cash value of Life Insurance; home and other real estate; automobiles; pension/retirement accounts; personal property and valuables (jewelry, coin collections, business assets, etc.)
The second part is what you OWE—your liabilities. Here you would list the following: credit card debt; automobile loans; home mortgages; business loans; educational loans; bank loans; all past due bills; life insurance loans; personal loans from relatives; all other debts and loans.
And once you’ve listed your all assets and how much they’re worth, and all your debts and what you owe, you subtract the debts from the assets to determine what financial planners call your net worth. Your net worth is the value of all assets minus the amount of all your debts.
If you OWN more than you OWE, you have a positive net worth, but if you OWE more than you OWN, you have a negative net worth.
As a couple, we update our financial statement and review it together on a regular basis. There it is in black and white. It shows if we were faithful in adding to our savings; the status of our investments; if we are doing a good job of managing our expenses by using our spending plan.
Most importantly by comparing the financial statement to the previous one we know if we need to make any changes. Are we following God’s ways or did we slip into bad habits? Are we being generous or do we need to increase our giving? Are we making progress saving for long-term goals? In reviewing the list of debts, we ask ourselves if we made reasonable progress in paying off the debts and if there is anything we can do to accelerate our debt repayment.
And then we examine the bottom line, the net worth. Did it grow or shrink and what changes do we need to make? In other words, we let the financial statement speak to us.
There are many important lessons that you can learn from understanding your personal financial statement. It enables you to get a big picture of your liabilities–expenses and things you own that do not generate income. It gives you a big picture of your personal finance positioning.
For example, if you have personal expenditures of $40,000 a year and your net worth is $80,000 then if you had no more income, in theory you have two years before your net worth reaches $0. Then what happens when you run out of money?
Reviewing your financial statement on a regular basis helps you plan for long-term needs such as college or retirement. The beneficial part of examining your financial statement is similar to other valuable lessons in life. Examining your financial statement and learning from it allows you to grow and improve by applying the knowledge you gain.
A financial statement is a tool that will help you be a more faithful steward of what the Lord has entrusted to you. In Matthew 25, verse 14 we hear the Parable of the Talents. The master called three servants and to one he gave five talents, to one he gave two talents and to one he gave one talent. The servants who received five talents and two talents each doubled what the master gave them. To the faithful stewards the master said “Well done, good and faithful servant; you were faithful in a few things. I will put you in charge of many things, enter into the joy of your master.”
The important thing was that the faithful servants knew the master owned everything he gave them and they were responsible for being faithful stewards of the master’s goods. And that’s what God calls us to be—faithful stewards.
When we look at our personal financial statement, we should not congratulate ourselves because we’ve had an increase in our assets. It’s not about getting rich or getting ahead. It’s not about how good we are—it’s about how good God is. Rather than patting ourselves on the back for a positive financial statement, we should get down on our knees and thank God for his blessings.
In 1 Timothy 6:9-10 we read, “Those who want to be rich are falling into temptation and into a trap and into many foolish and harmful desires, which plunge them into ruin and destruction. For the love of money is the root of all evils, and some people in their desire for it have strayed from the faith and have pierced themselves with many pains.”
We’ve met several people who have plunged themselves into ruin and destruction by wanting to get rich. There was one couple we were working with and the husband made an investment without his wife’s knowledge. The investment was made with his former girlfriend and it was a very substantial sum of money. When his wife found out she was devastated by the dishonesty and the fact that he did not consult with her. The investment was in real estate, right before the crash and he ended up losing the entire amount of his investment, putting the family into financial jeopardy. The couple ended up divorced because of his deceit and dishonesty.
He wanted to get rich and this goal dominated his life. But what the Bible tells us is don’t desire to become rich. The desire to be a faithful steward of whatever you have been given, so you too can hear the words, “Well done, good and faithful servant… enter into the joy of your master.”
Check out Compass Catholic website to download Net Worth Calculation Spreadsheet