Selfie and the Balance Sheet
RAISING CHILDREN WITH HIGH FQ - Rose Fres Fausto (The Philippine Star) - August 7, 2013 - 12:00am

MANILA, Philippines - The term Balance Sheet might evoke unpleasant memories of your unhappy Accounting days, when you could hardly differentiate debit from credit, could not balance the left side with the right side of your statement.

The truth is, there is nothing mystic about Balance Sheets. Well, until some brilliant accountants invented voodoo in the preparation of these statements that brought about fraud catapulting companies to become top corporations in the world, only to implode years later when the magic spell was gone! (Think Enron, etc.)

So in simple language what is a Balance Sheet? It is a statement of your financial condition. If that still sounds intimidating to you, it is just a picture of what you own and what you owe. It is taken at a point in time. And in the age of selfie wherein we take our own photos left and right, I guess we have to transfer this penchant to how we monitor our financial status which will help us have a brighter future, and eventually, enable us to look good even in old age so we can continue to take selfies left and right! (Money problems have a way of making one look unhappy and old.)

To the unaware, especially those who refuse to have a Facebook account, Selfie is a portrait of oneself, taken with a hand-held digital camera. The term was popularized by photographer Jim Krause in 2005 and in 2012 Time magazine listed it as one of the Top 10 Buzzwords. It’s now included in the online Oxford English Dictionary.

In the same way as selfies are casual and taken by oneself, you can just make your own Balance Sheet, no need to hire an accountant, unless you have to file it with the BIR or if you’re a government employee who needs to file his SALN (another term for Balance Sheet which stands for Statement of Assets, Liabilities and Net Worth). For ordinary mortals, just do it in an excel file or if you still prefer the columnar pads of yesteryears, go ahead. In fact, you can just write it down on a sheet of paper.

Now here’s where the difference lies. Selfies are usually posted on Facebook, Instagram and other social networks for your friends to see and hopefully, “Like.” I don’t suggest you do the same with your Selfie-Balance Sheet! Not even a selfie in/with your outrageously expensive items in your Balance Sheet. (Think Napoles daughter.) All the sharing you can do is with your spouse, parents if you’re a minor, your accountant, your financial adviser or any trustworthy individual whose financial counsel you value.

Your Balance Sheet is for you. It serves you the following functions:

1.    It gives you a summary of the things that you own and the things that you owe.

2.    Balance Sheet is a picture and pictures have the visual power that helps us understand and remember abstract concepts like money. This is why I advocate Balance Sheets even for young kids. The left side shows you your Assets while the right side shows you how you funded those assets (either with equity or debt). The total amount of the left side should equal to the total amount of the right side. Remember the equation: Resources = Sources.

3.    It shows you your asset mix. Your assets are listed from most liquid (current assets such as cash on hand, in bank, short-term fixed income investments, etc.) to least liquid or long-term (fixed assets such as real estate, etc.). Strictly speaking, stock investments and bonds are liquid assets because you can sell them easily; thus, should be under Current Assets. However, may I suggest you do as I do in preparing our Balance Sheet (BS)? I put our stock investments and long-term bonds under long-term assets to remind us that we intend to hold them for the long-term. This way it’s easy to get the percentages of your short-term vs. long-term assets. This helps you maximize returns by investing in higher-yielding instruments amounts in excess of your Emergency Fund and other allocations for short-term needs.

4.    It shows you how you fund your assets. If you see that you are highly leveraged (i.e. you have a lot of debts) and there is no proper matching between your assets and liabilities, you can do something about it. For example, if you see that you are financing long-term assets with short-term debts, it’s time to fix your funding to avoid a possible financial disaster.

5.    It shows you your Net Worth, which is Total Assets minus Total Liabilities. It may be misleading for some people to think that they’re okay just because they’ve accumulated a lot of assets. The Balance Sheet reminds you of your Net Asset Value (NAV), the amount left after you’ve settled all your debts.

6.    It makes you aware of depreciating assets. If you bought yourself more cars than what your garage can accommodate because of our coding traffic scheme, you might also be misled to overestimate your assets. Remember that cars depreciate so fast, as soon as you take them out of the car store! The improvements on your land should also be depreciated. I don’t even bother listing down appliances in our BS. Now I sometimes get asked, “Should my signature bags be listed in my BS? They appreciate in value, you know.” Maybe you’re right. And maybe you should really have a separate category for these luxury assets to make you aware how much of your resources are devoted to them.

7.    It makes you understand your Earning Assets. In our Balance Sheet I have an item that we call “Earning Assets.” It’s Total Assets minus the house where we live in minus cars and other assets that we don’t really intend to sell come retirement age when we start using up our nest egg. This is the amount that we’re conscious of because this is the total of all our investment assets, the amount that we want to grow in preparation for our sunset years. Although our house also “earns” as its value appreciates over time, we didn’t want to include it in our Earning Assets because we don’t want to reach a point when bulk of our assets would be our home and we would need to sell it to have liquidity. Although we sometimes think that we may opt to have a smaller house once the kids are all gone, we want to sell our house in the future because we would want to not because we would have to. Edward Lee, COL Financial Chairman, shared with our FQ participants last summer that he knows of rich (but illiquid) matrons who refuse to part with their big ancestral homes even if they have to, and some of those who sold end up being depressed. In fact, he had an interesting solution to this problem, which I will share in a future article.

8.    It makes financial goal setting easier. Keeping records will allow you to track your progress. I recommend quarterly update.

9.    It provides married couples a tool to know their financial condition and facilitates disclosure of sensitive matters such as money.

10.  It motivates you to save and invest. Saving and investing are essentially delaying gratification, and we know that this is not always easy to do. Seeing your Net Asset Value grow is a substitute gratification. The BS has helped my sons delay their gratification because they know that enjoying their money is not only achieved by spending it on the latest gizmos, but also in seeing their NAV grow every quarter.

I have always advocated Balance Sheet for all. I dream to see the day when the Filipino FQ has gone up so high that each Pinoy would know his NAV the way he knows his other vital statistics such as his height, weight, waistline, BP, no. of FB friends, etc. So the next time you take another selfie, ask yourself, “Have I updated my Selfie-Balance Sheet this quarter?” I guaranty you, if you reap all the benefits stated above, you will definitely “LIKE” how you will live your retirement years!

Wishing you Financial Happiness,

Rose

(Rose Fres Fausto is the author of the book Raising Pinoy Boys. Click this link to download free book sample To read her other articles go to www.RaisingPinoyBoys.com archive. Send your questions via email to maryrose_fausto@yahoo.com or text to 0917-5395770.)

This article is also published in RaisingPinoyBoys.com.

Image Attribution: Images from graziadaily.co.uk, hurricanvanessa.com, spot.ph put together by the author to deliver the message of the article.

12PX ASSETS BALANCE BALANCE SHEET FONT SIZE
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