Balance Sheet

The balance sheet is created by combining your expenses and income to show net results.  We’re going to take our Cost of Living and Income examples to make our first balance sheet.  If you haven’t read either of those posts, I’d suggest you start here.

What is the Point of a Balance Sheetmulti-colored abacus

The goal of the balance sheet is to paint a picture of financial health at a moment in time.  Companies usually report these details in quarterly reports.  I’m not sure how frequently I’ll report these going forward, but we want to show what our starting point looks like.  Investopedia’s explanation for a company’s balance sheet uses this accounting formula: Assets=Liabilities+Shareholders' Equity

There are clear similarities to our balance sheet.  We follow the formula:Investable Assets = Cost of Living + Income

Since our costs of living is a liability, that part is the same.  In this situation, we’re the only investor in this operation so Shareholders’ Equity is really just Dustin and fiance.  So, the formula works either way!

The Initial Balance Sheet

According to our first balance sheet, I should be able to save or invest, $23,900 per year. That means that I’m able to save 38% of my after-tax income. How did I get that?
($23,929.12/$61,899.12)*100 = 38.65%

The savings rate is a great metric to keep track of.  Mr.MoneyMustache lays out the importance of knowing your savings rate better than I can.  With that in mind, I’m going to track my savings rate as a way to see progress over time.

Now, there is a big difference between being able to save or invest this amount and actually doing it. I’m quite surprised to see this amount, and I’m left wondering where that money has gone.  This makes me want to set a new goal.  I want to try and save $2,000 per month.  Going forward, I’m going to identify what happened during the month that prevented me from meeting that goal.  I think everyone has unexpected events that come up.  Like car repair or a sick pet.  Certainly, those things must be resolved.  Hopefully, they don’t occur too often and I can maximize savings.

Take Aways

We already identified some areas of improvement from now until the next report.  We’re going to be trying to accomplish the following:

  • Reduce Dining Out by a minimum of 50% or $150 per month
    • Recognize and record the change to grocery budgeting because of this change
  • Start working on a plan to have your home paid off to reach financial independence
  • Save $2,000 per month
    • Record any unusual costs or spending that prevented reaching the savings goal.
  • Track savings rate over time to understand my savings efficiency


Author of Tracking my goal of achieving financial independence in 10 years.

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