Bed Bath & Beyond (BBBY) is a recent example of a failed public company. There are a few reasons given for their demise, but poor financial planning was the ultimate nail in the coffin. In 2014, allured by low interest rates, the company started taking on more and more debt and ultimately, their finances crumbled when sales slowed, and interest rates had risen. At Regatta, we want each of our clients to view themselves as their own corporation. And like a corporation, it is critical to know where you stand today and to make sound/realistic projections for the future, so you are not surprised at where you end up down the road. Preparing financial statements, specifically a balance sheet and an income statement will help assure you are on the right financial path.
A balance sheet is a snapshot of your net worth on a specific day. It looks at your assets (what you own) and your liabilities (what you owe). The difference between the two is your net worth. The benefits of knowing and tracking your net worth over time is different for each of you. For individuals and families in their prime working years, you can track your net worth over time to see if you are saving enough and growing your assets. For retirees, net worth is a key input in determining how much you can spend on discretionary items. For everyone, it is a great way to track how your investments have been performing, year over year.
An income statement looks at income (how much money is coming in) and expenses (how much money is going out) over a specific period of time. Generally, a corporation will issue a quarterly income statement, but for individuals and families, we tend to use a month that coincides with paychecks and mortgage/rent payments. The US consumer is known worldwide to be consistent and dependable; we love to shop! As financial advisors / planners, it is our goal to make sure all our clients are “living within their means” and the income statement is where we can review if we are being “responsible.”
With a completed balance sheet and income statement, we can make projections for your retirement years. Taking bits and pieces from each, we can estimate how much income, interest, and capital gains you can expect to earn. The other piece of the puzzle is more qualitative. Every one of you has different plans and visions for your retirement. Collaborating with us on what your retirement dreams are is a crucial part in determining if you have enough to make it to the finish line. Do you want to travel, pay for a wedding, buy an RV, remodel the kitchen, leave money to a charity? Determining when you want to do these things and how much you foresee spending is necessary work in making sure you are headed down the path of fulfillment.
Let us know if you want to work with us to get your financials updated. We are here to help!