There have been many statistics published in the news about how more and more millennial adults are still living with their parents. More so than previous generations. As this is an investing and personal finance blog, I would like to focus on the merits (or not) of this strategy in order to save money early on in your career.
Is this a smart financial move? Or does it turn you into a loser?
Your mortgage rate is 3.75%. The stock market returns 7-11% on average (depending on who you ask). You'd have to be a fool to pay extra on your mortgage when you can make so much more in the stock market.
In the first three sections of this series, I discussed the three big annual financial statements that publicly traded corporations are required to produce: the Balance Sheet, the Income Statement, and the Statement of Cash Flows... and how we as individuals can do something similar for our own finances. Along the way, I also provided simple examples for Brian, a fictional recent college graduate.
In this final part, I will present a more complicated and realistic example, that of a husband and wife with a house, a mortgage, a stock portfolio, and an investment property.
Did you know you that a business can have a positive net income, but still be hemorrhaging money?
In Part I we talked about the Balance Sheet (your net worth) and in Part II we talked about the Income Statement. The problem with the Income Statement is that it only shows your expenses... and things like paying down the principal portion of your loans are not expenses.
If you rely solely on your Income Statement to do your budget, you could be in for a rude surprise if you carry a mortgage.
This is where the Statement of Cash Flows comes in
Your household isn't really much different from a business. You generate revenue (you and your spouse's salaries, for example) and like a business, you also have expenses (rent payments, grocery bills, etc). Any good business owner or CEO knows whether his company is making or losing money. If someone asked you if you made or lost money last year, would you know?
In Part I of the Making your own financial statements series, I talked about how to calculate your net worth by replicating the first of the three reports that make up a publicly traded corporation's Financial Statements.
In this part we will discuss the second report, which is called the Income Statement.
I'm sure at one time or another you've heard someone say something like... "Wow! Bob's business is worth $3.5 million." or "Roger's business is no good. It loses $2 million a year!" or "Bill Gates is worth $90 million."
Did you ever wonder what your net worth is? How much money you're making and what you're spending it on? Where you've been going financially over the past few years?
If so, you should do an Annual Report on yourself.
So what exactly is it and how do you do one?