This week, the personal finance section of the show deals with the often-overlooked personal financial statement. Even though many people neglect to complete one, this statement is integral in knowing your net worth and assessing whether you’re making progress. It’s so important, in fact, that Moshe recommends making one every three to six months.

Basically, a personal financial statement is a snapshot of your total net worth, broken down into assets and liabilities. By subtracting your liabilities from your assets, you can determine your total net worth.

A personal financial statement offers several benefits. It can help with long-term goals by giving you a snapshot of your starting point. It also causes you to start paying attention to how much of an impact various things have on your net worth. Finally, it gives you a point of comparison when you make another one later, which allows you to track your progress over time.

The easiest way to create a personal financial statement is with a spreadsheet. You’ll have separate columns exploring your assets (including liquid assets, investments, property, and retirement accounts) and your liabilities (including credit card balances, student loans, medical bills, money owed to the IRS, mortgages, and so on). For a template and example, go to dreambuilderfinancial.com/pfs.

Of course, you’ll need to gather quite a bit of information to make your personal financial statement. You can do this manually, of course, or with software. Moshe mentions Mint as a free option, or YNAB (for “You Need a Budget”) as a paid option. For an old-school desktop application, Quicken is still around.

In the business section of the show, Moshe discusses why you should start your own business. He offers some pretty compelling reasons. For example, when you have your own business, you have unlimited income potential, meaning the sky’s the limit. Having your own business also encourages you to give the venture everything you’ve got, something you’ll never fully do when you’re working for someone else.

By starting your own business, you’ll also be creating an asset that can later be sold. In addition, your business can be a potential income source for other family members; you can hire a spouse, your parents or siblings, or even your children. It may even save you money, as expenses that you’re incurring anyway can become business expenses.

When you’re deciding whether to start your own business, one of the most important questions to consider is how to do it. Will you quit your job to focus on your business full-time? Will you continue working full-time while starting the business as a side hustle? Will you reduce your work hours and spend half your time on the business? There is no one right answer, so Moshe shares his own experiences. For him, working a full-time job and starting his own business on the side was the way to go. He then talks about Pat Flynn, whose book Let Go describes the very different path he took. Zach Spuckler took yet another path, as did Jon Acuff.

Finally, regarding taxes, Moshe provides a basic explanation of our tax system. Taxes are an earn-as-you-go system, he explains, which makes it easy to have too much or too little withheld over the course of the year.

If you’re employed, your employer withholds taxes and sends them to the government. If you’re self-employed, you need to send in estimated taxes every quarter. Either way, most people are going to overpay the IRS, and then have money sent back to them in the form of a refund.

Getting a large refund is basically giving the government an interest-free loan. Some people think this isn’t necessarily a bad thing, because it’s something like a savings plan, but Moshe explains why that’s a misconception. Whether you overpay or underpay, you should correct the situation to be as close to accurate as possible, and Moshe wraps up the episode by giving some information on how to do this.

In This Episode:
[01:17] – In the first segment of the show, Moshe will explore the personal financial statement. He begins here with an explanation of net worth.
[02:19] – Why is it important to have a personal financial statement?
[05:17] – Moshe lists several other instances, outside the realm of what he’ll be covering in depth, in which you might need a personal financial statement.
[06:35] – Now that you know what a personal financial statement is, how do you create it? Moshe gives listeners an overall view of how to create one. To download a template and see an example of how to create your personal financial statement, go to dreambuilderfinancial.com/pfs.
[09:43] – Moshe discusses how to gather all of the information you need.
[13:07] – What should you include in the asset and liability columns?
[20:59] – Moshe, who had been talking about assets, moves on to the liability section.
[23:14] – We move onto the business section of the podcast, with Moshe providing some great news: he’s offering a flowchart that walks you through the steps you need to take to get your business going the right way. To get the Entrepreneur Blueprint for free, text “entrepreneur” to 44222 or go to dreambuilderfinancial.com/entrepreneur.
[23:53] – Are you thinking of starting a business? Do you already have one? If so, and you have questions, head over to the show notes page at dreambuilderfinancial.com/1005 and let Moshe know!
[24:23] – This business section will cover why starting a business is a great wealth-building tool. Here, Moshe lists some reasons.
[27:55] – The next reason belongs in the tax section, but it’s important enough that Moshe can’t skip over it, so he talks about it briefly.
[32:02] – The biggest challenge when you’ve decided you want to start your business is deciding how to get started (whether you should keep your job full-time, for example, or quit and dive fully into the business).
[36:46:] – A frequent question that Moshe gets from business owners is this: “What do I need to know about business taxation?” Fortunately, he has the answer! To get a copy of his free guide with five tax tips every business owner needs to know, you can text “5taxtips” to 44222 or go to dreambuilderfinancial.com/5taxtips.
[37:30] – Moshe moves into the third section of the podcast — taxes — by beginning with the basics of tax-related topics (and misconceptions).
[40:36] – What is the tax return?
[42:03] – Getting a large refund is actually a bad thing, not a good thing, and Moshe explains why.
[44:36] – Moshe gives advice on how to prevent getting a large refund, now that we’ve established that this is a bad thing.
[45:48] – What should you do if you had too little money taken out, and want to fix that for next year?

Links and Resources:
DreamBuilder Financial
Facebook.com/dreambuilderfinancial
dreambuilderfinancial.com/pfs
The Entrepreneur Blueprint
Mint
YNAB
Quicken
Pat Flynn
Let Go
Zach Spuckler
Jon Acuff