Tuesday, August 13, 2013

Book "Home Finances for Couples". Extract from Chapter 7. How to manage family budget: advanced technique

I plan to publish my book "HOME FINANCES for COUPLES. Resolve Money Problems in Marriage and Learn Easy Steps to manage Family Budget" on August 20th, 2013.

At this blog you can taste pieces that are ready.

Here is the extract from Chapter 7. Assets, Liabilities and Income Statement







Technique Description
In the 15th century, the Franciscan Friar Luca Pacioili invented a system of double-entry bookkeeping. It’s the golden rule of the financial world and the basis for the modern financial-reporting standards. The rule says that each entry has two sides and influences two accounts. It’s also called debit and credit side. Regarding home finances, the rule creates the home-accounting equation, which is Net Worth = Assets – Liabilities. 

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What are the net worth benchmarks to compare with?
I have not found any reliable data for the couples. However there a good article in the topic “The Average Net Worth For The Above Average Married Couple” at Financial Samurai website.
If you live in the U.S., you can compare individual net worth by using CNN Net Worth Calculator.

Can the net worth be negative?
Yes, and I’ve seen such cases in home finances. Their liabilities outweigh their assets because of large debts. It’s unsustainable and, sooner or later, the family improves its net income and repays the debt. Or, in a worst-case scenario, the family declares bankruptcy.

Pros
The advanced technique allows you to see the big picture of your family’s financial situation because you have balances of all your savings, investments and debts. 
It also blocks major mistakes and omissions, since all accounts are interconnected and must be balanced.

Cons
It’s the most time-consuming technique.
Users usually need a financial background or deep interest in home finances to maintain all the accounts. 
 

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