In Chapter 9, we will talk specifically about this topic, and give you tools (pre-configured Excel sheet) as your own financial statement. However, for now, as part of your homework, I would like you to start building your own Excel sheet first. The best learning always comes from doing it by yourself.
Some basic guideline for the track sheet
- separate positive (income) vs. negative (payment) cash flow
- separate cash flow that will occur at different time period. For example, monthly income vs. annual payment
- keep historical cash flow in an easy-to-access format, so it is easy to compare (e.g., last month's utility bill vs. this month's)
If you are not sure about how to do this, go to Yahoo Finance website and look at any public company's financial statement. For example, Intel's (stock symbol INTC).
After you have the track sheet, you need to measure your financial performance
- measure your current total worth
- measure your expected NPV for the expected 12 month's cash flow
- build your summary so you can easily measure the growth of your total worth on quarterly and annual basis.
The reason is to understand where your cash flow comes from and how good is the growth of your wealth (or debt for that matter). In next Section, we will talk about this in more details.
