Building a One Page Financial Statement to Change Your Financial Future

In This Article

Would you be terribly surprised if I told you that once in a while I run dry on ideas for the BiggerPockets blog?  I mean, between BP and my blog I write quite a lot, and while it’s easy when inspiration takes over, there are times when it’s simply not there…what to do?

Good news – there are two ways I can usually come up with topics to write about.  The first thing I do to get ideas is check what Brandon Turner wrote about in the past two weeks; I am usually able to find something to disagree with.  This is my favorite approach indeed – it’s very difficult to say why…

However, once in a great while Brandon manages to go for two weeks without making some fantastically silly argument in his articles that I can pick at, in which case I am back to being stuck and it’s time for plan B which is to check the forums – what do people want to know this week?  Perhaps this should be my plan A, but I just can’t help myself…

This article is in response to something I saw in the forums:

This Week in the Forums

I came across a thread this week in which the gentleman was asking for a template of a Financial Statement.  I have a story around this that I thought I’d share:

The Story

I am a violinist by training.  A lot of what I did to make a living in the past was teaching – at one point I had many budding fiddle students.  Well – it just so happens that the grand-father of one of my students was a very successful RE investor.  I knew that there was a ton that I could learn from him if I could only gain access to him, which was anything but easy.  For the first few years he didn’t give me the time of day.

Eventually, though, either because it was obvious that I was trying very hard, or for another, he invited me over for a chat and while most of what was said is none of your business, I will tell you that he asked me for a Financial Statement.  He said nonchalantly, as if it didn’t matter at all – just give me something simple; something on one page that lists your assets and debts, and your income…Come back tomorrow and bring it – 11 AM will do fine.

Financial Statement

I did not have a one-page Financial Statement.  I had my tax returns, which is the most complete financial statement there is, but he obviously was not looking for that…what to do?

Well, just like most people reading this, at one point I had read Rich Dad Poor Dad by Robert Kiyosaki and I followed that up by spending $200 on the board game Cash Flow.

If you haven’t played this game, you should.  Though it’s only the very tip of the iceberg and to succeed in real life you’ll need to know much more, this game is a very effective tool to get you thinking in the right direction…

One of the playing pieces in this game is essentially a one-page financial statement.  Players pull profession cards at the outset of the game which assign the player’s starting financials.  These financials get transferred onto the one-page financial statement, and every time a player is involved in a financial event throughout the game, good or bad, the financial statement is amended by the player to reflect the changes brought on by the event.  What makes the Cash Flow game is so good is that it allows players the benefit of experiencing in real-time the impact of the financial decisions they make.

A financial statement is comprised of two main parts: Income Statement and Balance Sheet.  The Income Statement lists, tallies, and reconciles all of the income streams as well as expenses.  The resulting figure is Cash Flow.  The Balance Sheet tracks all of the Assets and Liabilities.

Coming Back to my Mentor’s Request

Put before the reality of needing a one-page financial statement before 11 AM the following day, there was but one thing to do – make one, and so I did.  I went home, opened a new Excel file, and created a one-page report loosely modeled on the financial statement from the Cash Flow game.  I was able to program all of the cells as need-be and within 45 minutes I had the complete summary of my financial life ready to go.

I still have it, though it has undergone modifications to accommodate the increased complexity of the things I am involved with now-days.  Patrisha and I updated this financial statement every month for a period of 2 years, until we gained a clear perspective on how our financial life really works.  Currently, we update it each quarter and any time we are considering making a financial decision – we like to know the impact of this decision before we are in the middle of it.

The Impact

Most people come into the CPA’s office with a box full of receipts.  Most people come into the banker’s office with a proposal written on the back of one of those receipts.  This may be news to you, but if it smells like crap, and looks like crap, then it probably is crap.  By being prepared we separate ourselves from the pack – dwell on this!

Before deciding to give me the time of day, the old man was testing me: do I know what is a financial statement; do I know how to build one; do I have a certain level of sophistication it takes to succeed with money?

Coming back at 11 AM the next day with a one-page financial statement in hand, just as he had requested, did the job.  First he looked at the paper I handed him.  Then he looked up at me.  Then he took another look at the financial statement and without lifting his eyes from the page pointed to a chair at the table – this was many hours of learning and many joint ventures ago…

Conclusion

As I stated in the beginning, your tax return is the most complete variant of your financial statement.  Additionally, your CPA can create a document called Statement of Financial Condition, which is a certified version of your balance sheet (it typically does not address income).  You should expect to have both of those handy any time you ask for money.

But, I do think that for practicality’s sake of you knowing where you stand in real time, as well as the sake of being able to provide anyone with a “short-hand” bird’s-eye view of your financial condition, you should indeed keep a one-page summary version of your Financial Statement.  Furthermore, in order to gain most out of it, I recommend that in lieu of buying a computer software, or asking me to e-mail you mine, you simply build one in excel or another program similar to that.  And if you have no clue where to begin, spending a few bucks on the Cash Flow game is not the worst idea in the world – it’ll do much good for you…

P.S. If you are close to Lima, OH, call me up – we’ll set up a time for you to come out and play the game.  I still have it somewhere in the closet, though I haven’t played the board game in a few years, so I may be a little rusty.  But, I have been doing OK playing the real life version – hopefully that’ll get me by…
Photo Credit: Philippe Put

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.