Say Goodbye to Financial Anxiety! Your First Finance Lesson Starts with Understanding 3 Personal Financial Statements

Getting to Know Personal Financial Planning and the 3 Most Important Statements

Every company has a dedicated finance department to carry out detailed and thorough financial planning, ensuring the company’s financial health and stable growth! So what about household financial planning? Shouldn’t families also have a similar plan to ensure financial stability and future economic security? This is a question every household should seriously consider. Whether you’re single or not, you should have your own financial plan.

What Is Personal Financial Planning?

Simply put, personal financial planning is like giving your money a full-body checkup. It helps you understand your financial situation, set financial goals, and find ways to achieve those goals. Sounds impressive, right?

That’s right! Just like a full-body checkup, it’s really important — but not many people are willing to do it regularly or spend money on it. The only difference from a health checkup is that financial planning doesn’t require any medical equipment — you can do it yourself. Sounds hard? Don’t worry — just get to know these 3 statements, and you don’t need to be an accountant to do it!

What Are the 3 Statements in Financial Planning?

These 3 statements are like your wallet’s checkup report:

1. Income and Expense Statement
2. Balance Sheet
3. Cash Flow Statement

Do these names sound familiar? That’s right — they’re the personal versions of corporate financial statements. Now, let’s decode these statements together!

What Is an Income and Expense Statement?

Income and Expense Statement

The income and expense statement is like your wallet’s diary, recording your income and expenses. Simply put, it’s a record of “where money comes from and where it goes.” Sounds like bookkeeping, right? Don’t worry — unlike bookkeeping, an income and expense statement is more of a record than detailed accounting. Even though I don’t do bookkeeping myself, I still maintain an income and expense statement to visualize my income and expenditures.

What’s the Purpose of an Income and Expense Statement?

The purpose is simple: to let you know how much you’re earning and how much you’re spending. This way, you’ll know whether you’re living beyond your means or how much money you have available for investing or spending.

How to Create an Income and Expense Statement?

Creating one is actually quite simple:

1. List all income sources (salary, investment returns, etc.)
2. List all expense items (rent, food, entertainment, etc.)
3. Calculate total income and total expenses
4. Subtract to get net income

What Does It Do?

An income and expense statement helps you:

• Understand your financial situation
• Identify unnecessary expenses
• Find opportunities to increase income
• Create a budget plan

Income and Expense Statement Example

Yes, you read that right — the income and expense statement really is that simple! Just list your income and expenses, organize the costs by category, and you’ve got a usable statement. As for how detailed it should be, that depends on each person’s needs — just like health checkups have different levels. Maybe you just want to measure your height and weight, or maybe add a blood test. Not everyone wants to go through general anesthesia for a full examination.

What Is a Balance Sheet?

Balance Sheet

A balance sheet is like your wealth record book, tracking all your assets and liabilities from the past to the present.

What’s the Purpose of a Balance Sheet?

The purpose is to let you clearly see your net worth — that is, if you sold everything you own and paid off all your debts right now, how much money would remain.

How to Create a Balance Sheet?

Steps for creating a balance sheet:

1. List all assets (cash, investments, real estate, etc.)
2. List all liabilities (credit card debt, mortgage, etc.)
3. Calculate total assets and total liabilities
4. Subtract total liabilities from total assets to get net worth

What Does It Do?

A balance sheet helps you:

• Understand your overall financial situation
• Assess your financial health
• Identify areas needing improvement
• Set long-term financial goals

Balance Sheet Example

Compared to the income and expense statement, the balance sheet can be a bit more challenging to put together. Investments can be further broken down into more detailed categories, and sometimes you might only focus on assets you’re actively aware of — forgetting items you don’t check on often or haven’t assessed.

What Is a Cash Flow Statement?

Cash Flow Statement

A cash flow statement is like your wallet’s heart monitor, tracking the inflows and outflows of cash.

What’s the Purpose of a Cash Flow Statement?

The purpose is to help you understand where your cash is coming from and going, and how efficiently you’re using it.

How to Create a Cash Flow Statement?

Steps for creating a cash flow statement:

1. Record operating cash flow (work income, daily expenses, etc.)
2. Record investing cash flow (buying/selling stocks, mutual funds, etc.)
3. Record financing cash flow (borrowing, repayments, etc.)
4. Calculate net cash flow

What Does It Do?

A cash flow statement helps you:

• Understand how efficiently you use cash
• Predict future cash needs
• Identify potential financial risks
• Develop better cash management strategies

Cash Flow Statement Example

The cash flow statement is usually the least commonly used of the three, because at first glance it looks similar to the income and expense statement — both seem to track spending and income results. However, the concepts of cash flow and income/expenses are quite different. Typically, we use the cash flow statement to analyze a person’s “living expense ratio,” “savings and investment ratio,” and “insurance expense ratio.” By examining these three major financial ratios, we can determine whether someone’s finances are healthy.

Can You Do Financial Planning Without These 3 Statements?

In theory, of course you can — just like you can reach your destination without looking at a map. But having these 3 statements makes your financial planning much clearer and more effective. They’re like a GPS for your finances — helping you find the best route and avoid financial pitfalls.

So, fellow lazy folks, stop treating financial statements like scary monsters. They’re actually your best financial partners that can help you achieve your dream of financial freedom faster. Now, pick up a pen and start creating your own financial statements!

What do you think about these 3 financial statements? Aren’t they simpler than you imagined? Feel free to share your thoughts in the comments. Remember, the first step to being “Lazy to Be Rich” is understanding your financial situation!

Further Reading

Lazy Da’s Conclusion

懶大

金融科技新創 CEO | 獨立財務顧問

The 3 financial statements are the reports we commonly use in financial planning. A simplified version is like measuring your height and weight; a detailed version is like an MRI. The difference is that financial planning doesn’t require medical equipment — it requires discipline.

If you can compile your complete household financial statements on your own, does that mean you don’t need an advisor at all? Not necessarily — because every athlete still has a “coach.” A financial advisor plays the role of that “coach.” They might not earn more than the athlete, but they have a deeper understanding of the importance and discipline of financial management.

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