Have you ever prepare a profit and loss statement for your household?
Do you know the net worth of your household?
If your answer is a "No" to any of the above questions, you may want to take steps to run your household finances just like you're running a business entity. Doing so would certainly bring your finances to a healthier level, whatever the state of financial health you may be in right now.
1) Assets - what the business entity own
2) Liabilities - what the business entity owes
3) Income - money that comes in
4) Expenditure - money that goes out
Our households are also operated on these same business fundamentals. We have assets (material things that you currently own), we have liabilities (housing loans, car loans, money owing to credit cards companies, etc.), we have income (salaries, dividends, interests, etc.) and we have expenditure (expenses on food, transport, utilities, entertainment, etc.). When your household income is greater than expenditure, you have profits. However, should your household expenditure exceeds your household income, you incur losses. If you suffer losses, it is time to evaluate your expenses and take steps to eliminate or minimize unnecessary expenditure so that you will eventually reach a profit situation. If your household is in a profit position after doing up the profit and loss statement, congratulations!
The next step to take is to determine the overall financial health of your household - whether your household has a positive or negative net worth. In business, net worth (sometimes known as net assets) is simply the total assets minus the total liabilities of the company. Read more in my article Do You Know Your Net Worth?
Start managing your household finances like a business to bring your household towards the next level of financial success!
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