Your personal financial statement gives you a panoramic view of your cash flow scenario. In simple terms, you see at a glance, where your money is going.
Have you ever wondered where your money went? You are not alone. It happens all the time. The problem is, you are using your brain (RAM) to store your financial records, instead of paper or financial software (Hard Disk).
Our brains (like computer RAM) was never meant for information storage. It was meant for information processing. We clutter up our brains when we use it to store information. Paper and other information storage devices does a much better job, freeing up your brain to concentrate on thinking.
If you use your brain to store information, you will lose bits and pieces of it as time goes on, especially if you use it to store figures. That is the main reason why our sums don't add up, when we reconcile our finances after all the money is gone. We are left with the question, "where did all the money go?"
That is why it is critical that we itemize our expenses online, real time, that is ASAP. If you leave it for later, you lose some information. This data is required to prepare your personal financial statement.
Your personal financial statement I am refering to here is not the one you fill out for your mortgage lender or creditor. That one is more general. This one is for your own consumption. Your personal financial reality TV show. It chronicles the whole show, uncut.
These figures tell the story of your financial life. You can see where you goofed, and where to make ammends, and apply the knife. Although you cannot see what you did with the money, you will be shocked to find out that the sums do add up. You can see at a glance, those nice things you can do without.
Forefront of the Hottest Battle
Keeping a record of your expenses is where the battle is won and lost. It is at this point that most folks throw in the towel. Without these figures, you cannot prepare a realistic personal financial statement. Your personal financial statement is a crucial document, and is needed to prepare other documents (Balance sheet and Financial Plan (Aka Financial Freedom Plan) etc).
To be able to budget effectively, you need to know how much you spend in a month. If you just put a figure on paper, you will be running a perpetual buget deficit, and a black hole will become a permanet feature of your budgets
Gathering this data requires a whole lot of discipline. It is what I chose to call “the forefront the hottest battle”. It seems to be an unlikely theatre, but this is where most people give up the fight, and with it, their quest for financial freedom.
It may sound like an overstatement. It is about control. Without these documents, you are clueless as to your financial state present past and future. You cannot control what you do not know. You can make as much money as you want, but power without control is a recipe for disaster…