Consider a person who owns a huge mansion, an expensive car and designer clothes, but has no job.
He has wealth, but no income. He has assets which do not earn and are expensive to maintain. (The case with many an actor past his heyday). Of course, these assets can always be sold and generate temporary cash inflows. However, when they have all been sold and there is still no job . . .
Consider a person who earns an annual salary in 5 or 6 figures, but who spends all of it in consumables. He will …read more

At the end of the day, what accounting does is: it measures wealth and talks about how income creates wealth.
There is a world of difference between wealth and income. It is easy to confuse the two. And many think wealth and income are synonymous. Wealth is what is owned. Income is what is earned.
Wealth consists in assets. Income consists in cash inflows.
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If you want your $$$$ to have the maximum & optimum effect on …read more

Even if you do not need to borrow to cover Expenses (especially if you are generating a Cash surplus), it is good financial strategy to borrow anyway and pay on time. Borrowing –when you know you can pay on time– establishes your credit rating and improves your credit standing. With a good credit rating and standing, it will be easy to borrow when you really need it.
If you follow the financial strategy of borrowing to establish or improve your credit rating / standing, do not keep the proceeds of the loan in your Savings Account or …read more

The most obvious way forward for individuals or households with no Earning Assets as can be seen in the relationships among the Personal Balance Sheet, the Personal Income Statement, and the Personal Cash Flow Statement:

is TO SAVE; i.e., to make sure that your Manhours generate enough of a Salary or Professional Fee to cover sufficiently your Direct Costs, leave enough of a net after Direct Costs to cover all your Expenses, leave enough to generate a positive Net Inflow which results in an Ending Cash position that increases your Savings Account.
The worst case is if you have to borrow to …read more

A personal or household Budget is useful in ensuring that you or your family do not live beyond your means. However, a Budget is not adequate in clarifying the financial issues confronting an individual or household. Personal Financial Statements will make clearer where the financial problems lie and how best to solve them, how to avoid financial problems, how to plan for growth in the personal or household Net Worth (i.e., what you are really worth).
Your personal Income Statement and Cash Flow Statement, taken together, can tell you if are earning enough or why you are always …read more

In a Personal Income Statement with no physical or Financial Earning Assets. The only source of Revenues will be Salaries and / or Professional Fees.
Direct Costs will be the expenses incurred in earning the Salaries and / or Professional Fees; i.e., Transport to / from Work, Meals at Work.
Expenses will include Rent since the Balance Sheet shows no House & Lot owned.
By netting out the costs incurred in earning the Salaries, it becomes clear whether enough Revenues are earned to cover Personal Overhead or Expenses.
Liabilities will be the unpaid Direct Costs and Expenses.
Personal Net Income will be the amount …read more