[/caption]I've been toying around with the idea that you can treat an individual financials as though it belongs to a company. Long time ago, as I was learning how to read financial statements - those pesky cash flow statements, income and balance sheets - I didn't realise that reading those are similar to an individual's statements. Let me illustrate:
Suppose I earn 100k in a year, but spent 70k, thus my savings would be 30k. Isn't this similar to a company with revenue of 100 mil in a year, 70 mil spent on costs, leaving 30 mil profits? Here's the interesting things:
1. Just like one can calculate a company's profit margin (profit/revenue), one can also do the same for a personal financial statements. Savings ratio (savings/total income) is very similar to a company profit margin and the analysis of it can equally be applied.
My savings ratio up to date is 60%. I didn't use total income, but used the basterdised version of it - total cash out/total cash in on a monthly basis (due to the nature of my job, there's a big difference between my income and the cash I get per month - that's another story for another day). It's lesser than last year, which goes around the insanely high amount of 80% on average. But hey, I'm happier this year and I definitely saved more in absolute amount. No regrets on spending money on people around me :) Read more...[caption id="attachment_2931" align="alignright" width="150" caption="Photo by Kyle May"][/caption]I've been toying around with the idea that you can treat an individual financials as though it belongs to a company. Long time ago, as I was learning how to read financial statements - those pesky cash flow statements, income and balance sheets - I didn't realise that reading those are similar to an individual's statements. Let me illustrate:
Suppose I earn 100k in a year, but spent 70k, thus my savings would be 30k. Isn't this similar to a company with revenue of 100 mil in a year, 70 mil spent on costs, leaving 30 mil profits? Here's the interesting things:
1. Just like one can calculate a company's profit margin (profit/revenue), one can also do the same for a personal financial statements. Savings ratio (savings/total income) is very similar to a company profit margin and the analysis of it can equally be applied.
My savings ratio up to date is 60%. I didn't use total income, but used the basterdised version of it - total cash out/total cash in on a monthly basis (due to the nature of my job, there's a big difference between my income and the cash I get per month - that's another story for another day). It's lesser than last year, which goes around the insanely high amount of 80% on average. But hey, I'm happier this year and I definitely saved more in absolute amount. No regrets on spending money on people around me :) Read more...
[/caption]I've been toying around with the idea that you can treat an individual financials as though it belongs to a company. Long time ago, as I was learning how to read financial statements - those pesky cash flow statements, income and balance sheets - I didn't realise that reading those are similar to an individual's statements. Let me illustrate:
Suppose I earn 100k in a year, but spent 70k, thus my savings would be 30k. Isn't this similar to a company with revenue of 100 mil in a year, 70 mil spent on costs, leaving 30 mil profits? Here's the interesting things:
1. Just like one can calculate a company's profit margin (profit/revenue), one can also do the same for a personal financial statements. Savings ratio (savings/total income) is very similar to a company profit margin and the analysis of it can equally be applied.
My savings ratio up to date is 60%. I didn't use total income, but used the basterdised version of it - total cash out/total cash in on a monthly basis (due to the nature of my job, there's a big difference between my income and the cash I get per month - that's another story for another day). It's lesser than last year, which goes around the insanely high amount of 80% on average. But hey, I'm happier this year and I definitely saved more in absolute amount. No regrets on spending money on people around me :) Read more...
