Personal finance accounting and analysis

[eagleyes]

Hi everyone,

While I was studying this week end for my accounting exam, It came to my mind that maybe some accounting principles applied and explained to personal finance would assist people to understand better about their situation and what to look at and Improve. In other words, any individual should be able to prepare its personal Balance sheet and income statement every year , compare that year to year, identify issues and make necessary improvements. It should be the role of Financial planners but I do not see that much being done.

So for an individual I would think you have:

ASSETS
* Current assets
-Cash or equivalent)
- Accounts receivable (if people owe you money)
- Inventory == this is maybe less applicable for an individual
*Property, plant and equipment
- Land and building == you house or apartment
- Equipment like your car or other stuff
* Intangible assets ?? (goodwill, trade names) == maybe not applicable to individual
* Investments like stocks NISA, IDECO, 401K, etc

LIABLITIES
* Current liabilities
- Short term debt like consumer loan
- Account payable if you have or money you owe to someone
- Taxes payable
- Insurance payable
Long-term Liabilities
- Long term debt like your house or car or student loan
EQUITY
Equity would be the remaining portion

On the income statement I would have
* Revenues == well if you are an employee the main source of revenue is Salary I assume but also any other revenue like dividends capital gains financial revenue
* Cost of sales == Not really applicable
* SGA == Expenses All sort of expenses except Salary which is your main revenue. This is a huge difference with Corporate accounts.
- Rent expense
- Insurance expense
- Interest expense
* non-operating and extraordinary income like gain on sales of property, dividends, capital gains, financial revenue
* non-operating and extraordinary loss like interest expenses, loss on sales of property,
* Income before tax
* Taxes: in case of individual many type of taxes may be paid depending on the country of residence and legislation but that could be counted.
* Net income == earnings for a year or savings would then go to Equity.

Then you can use some of the financial ratios and evaluate your situation like your net margin, current ratio, Equity ratio.
This is just a starting point but I would be keen to develop that. I am not pushing to have also a cash flow statement right now.
Food for thought. I would be glad to hear your views.

[RetireJapan]

I'm in favour of anything that helps people. Personally I'm far too lazy to do something like this

At the end of the day, it all boils down to: spend less than you earn, and invest the difference in something sensible. Do this for decades and you'll be fine.

[RetireJapan]

There are also a few things like this: https://www.youneedabudget.com/