Why Your Family Income Statement May Be In The RED

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Why Your Family Income Statement May Be In The RED


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January 25, 2015

Whether or not you accept the role, you are the CEO of your family finances. Many seasoned manager and vice presidents do an excellent job at work managing the profit and loss (P & L) for their divisions. However, most don't apply the astute management techniques they learn at work to their family finances. Why not? The fact is that even if you have a college degree or an MBA, nobody ever really teaches a personal finance course on how to run your family finances like a business.

The two metrics that most business owners review in their business are the income statement (P & L) and the balance sheet. Running your family income statement efficiently (or profit and loss statement) to maximize your cash flow is part I. The cash flow then drives the balance sheet (net worth) which is part II. Net worth is what will ultimately create your overall family financial security.

The balance sheet is simply everything you own versus everything you owe or what some people call your net worth. This includes assets like real estate, collectibles, furnishings, and all of your liquid cash/investment assets. You subtract all of your liabilities including mortgages, student loans, automobile debt, and any other consumer debt to figure out what your net worth is today.

The profit and loss is essentially everything you bring in from both waged income and passive income, and subtracting everything you spend to see if you have free cash flow to save in your family finances.

Since all of us will have a finite amount of revenue, it is important to learn the skills on how to manage your family P & L. How do you minimize your federal and state incomes taxes will be question number one. Are there discretionary expenses (fat) that you can remove from the budget? Is there a way to get a better deal on your fixed expenses? Do you need a complete lifestyle (reorganization) change? Learn these tips and more and you can run a very successful company as the CEO of your family finances.

Written by: Ted Jenkin
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