This template can be used to evaluate what is possible, or to simply identify potential savings should you want to improve your financial cushion. If you are contemplating a change in 2021, make it an informed decision. And it is in that vein that I wanted to share this post. This practice also gave me the confidence I required to leave my full-time position in private equity to pursue building in 2020. The condominium, purchased at an attractive price, would cause my balance sheet to grow over time whereas an increase in rent would cause my balance sheet to shrink in each subsequent period (all other variables held constant).
If I received a large bonus, for example, I would weigh an increase in rent against the decision to purchase a condominium. Instead of looking at cash as a resource to support my lifestyle, I started thinking about keeping the value of that cash on my balance sheet. Awareness encouraged a more frugal mindset, and my savings as a % of my earnings started to increase. So I developed the personal budget template associated with this post to better understand where my cash was going. I wanted to show an increase in each quarter, which required a thorough understanding of my expenses. What I started to notice, however, was that the quarterly practice started to change my behavior. Fortunately, I recognized that he was much smarter than I was, so I went along with it. It felt like a silly exercise because I only had a checking account and a savings account at the time, and building a spreadsheet with just two entries felt dumb. So early in my career he encouraged me to create a balance sheet to track personal assets on a quarterly basis. In his opinion, the scrutiny applied to personal finances should mirror the scrutiny applied to a new investment.
He was a lifetime investor (and absolute nerd) that focused most of his career on private equity. At the time my father told me that as it relates to financial performance, he believed data tracked generally tended to improve over time. This is an exercise I have worked through every year since I was 25 years old.