Sabrina’s Financial Roadmap to Adulthood

Guidepost #1: Just like when you’re a child, one of the first lessons in life is balancing.

By Sabrina Govindarajan

Hello everyone. My name is Sabrina and this is your financial roadmap to adulthood; in layman’s terms, surviving the teens and 20s, even maybe the 30s, financially. Together, we will create, understand and dissect, and finally implement a financial roadmap. I will be your guide throughout this journey and will help you get a better handle on your financial footing.  I will address many situations that can and most likely will occur during these years. I want you to understand the basics of finance and how it affects your life so that when you see yourself facing these hard decisions, you have a better idea of how to tackle them. Now let’s begin with a basic concept: the balance sheet.

For all the business majors out there, you know that the balance sheet is a simple yet crucial document. It defines assets, liabilities and equity. To those who are not sure what I mean by that, it basically outlines what you have (assets), what you owe (debts/liabilities), and stocks issued (equity). It then tallies them up and you end up with a number, positive obviously being good, and negative, not so much. Once you have laid out your assets and liabilities, you can then look at the bigger picture. There are probably many questions that have risen over recent years and you were unclear on how to answer them. “Where am I financially? What purchases do I need to make and how am I going to finance them? Where do I want to be financially in the next 5 years? How can I start saving?” And I’m sure there are more. These are all viable questions, and I promise you’ll be able to answer each and every one of them as we walk through this series. So now back to the balance sheet. Once you get that last figure, you can then try to understand where you are currently and where you would like to be. Many businesses use balance sheets to make decisions for the future. They create budgets based on the numbers to greater their profits. I am going to try to do the same for you, and put more money in your pocket and help you build a stronger financial platform.

 (Click on picture above for more more detailed view)

The next statement we’re going to look at is a personal cash flow statement. The description is fairly simple, it shows cash inflows against cash outflows. The purpose of a cash flow statement is to see whether you have enough cash to pay your bills and assesses your purchasing power. There are three sections that make up a cash flow statement. Operating activities describe any cash flows related to net income or losses. Next is investing activities, which includes investments as well as purchasing or selling assets/investments. Finally, financing activities encompasses cash made from selling stocks or bonds. It also consists of bank loans. For our purposes though, I’ve simplified the format to really cut to the chase and show what’s most important to most people – 1) How much do I have in my bank accounts  2) What are my expenses this month? 3) Do I have enough money to pay my expenses? 4) What’s left over after everything is paid? The illustration below depicts an average monthly cash flow to answer those basic questions though we can certainly make it more sophisticated.

(Click on picture above for more more detailed view)

 Once you have completed your balance sheet and cash flow statement, you will then know your financial position, your net worth. Are you in the positive or negative? I hope the positive, but if not, I’ll help you get there. There are probably some choices that need to altered, but it’s only to better you in the future and in the now.        

So this is only the start of a long but educational journey. I hope you’ll join me for the ride!