A while back, I told you the components of a Personal Financial Statement, or PFS. I still talk to people considering becoming real estate investors and they haven’t done this yet. These aren’t everyday workers; they are high-performers like physicians. Many of us get out of our graduate schools and immediately go to work, rarely feeling the need to look at their finances. This is a recipe for mediocrity. If you don’t have a PFS, you need it yesterday.
Your Net Worth
I really hate this term. It would seem to boil everything that you are down to a bottom line number, implying that worth is no more than how much money you have. I totally disagree with this. Wealth is not about money but about fulfillment. But net worth is like blood pressure. People freak out over a single reading that is too high or too low when taken on their crappy $19 Walgreen’s Black Friday Special monitor that fits on the wrist. That number is meaningless. What is helpful, is the trend in this number over time. If it’s going up or going down, then we have something to work with. The net worth is the same thing. Hopefully it is going up, and hopefully quickly.
For Your Bank
If you ever want to take out a loan to purchase investment real estate, you’ll need a commercial loan. Sure, not every bank is going to want a PFS, but most will. If you send this in with a well-put together initial pitch (check out this post for how to do it), you’ll look like an experienced rock star right out of the gate.
For Yourself
I like to work out a new PFS about every 6 months. It’s helpful to see if I’m on the right trajectory. I think I am. For you mathematicians out there, sorry about the lack of a y-axis. The numbers were just too big to fit 🙂
The PFS gives you a way to measure over time how you are doing. Want yours to look like mine? Hint: buy real estate. I’ve been making nearly the same hourly pay at my W2 for the last ten years. That money doesn’t even move the needle anymore. Every spike in total assets is another big purchase.
Are you on track for retirement? The PFS won’t tell you for sure, but will give you a good indication. Make a habit to redo yours every 6 months.
