Friday, February 01, 2008

My financial statements

Ever since I started recording my daily expenses from the start of January 2008 till now, I think I have a clearer picture of where my money goes to. You will grow whatever you focus upon, I believe.

For the first time in my life too, I recorded my cashflow statement, income statement and my balance sheet on a monthly basis. Now I know exactly how much money I take in per month and exactly how much is spent and on what, and how my different portfolios do. Doing a stock take of one's current situation is the first step towards control over one's financial situation.

For one thing, I'm happy that I saved a huge chunk of my cashflow. Unlike others, because of the nature of my job, my income statement is different from my cashflow as I take my pay after I have done my work. Ask any self-employed person - they will tell you that cashflow is everything, not income. So because of my special employment circumstances, I experienced first hand what it is like to be a holding company - though I'm the boss, accountant, manager and worker all in one person. Back to the topic sentence - how much did I save from my cashflow? For every $100 earned, I saved $75 and spent $25. This means that my free cashflow (cash that can be used to spend on anything I want after subtracting food, household expenses and other essentials) is slightly more than 75% of my net monthly cash flow in.

This is a either a fluke month or I'm a mighty saver. I need more information before I can determine that. I did have an extraordinary gain this month and a few extraordinary expenses (on books). Here's the break down of my expenses in percentage to the total amount spent.

Food - 23%
Transport - 11%
Entertainment/books/social functions - 19%
Clothing - 12%
Household expenses - 28%
Others - 7%

I will track this data monthly and then quarterly for perhaps a year? Then I will have a very very accurate picture of my expenses. It's interesting that once I started reading up on fundamental analysis, I see myself more like a holding company. It's just a very interesting way to view myself. From my past flawed memory, I forecast that my expenses will drop even more as I get busier into the year and have less time. Either case, if I carry on with this insane amount of savings, I will accumulate a vast amount of free cash available for me to do anything.

Since I have more cash than I would like to have in my savings account, I'd transfer some over to my POEMS money market fund to get a higher interest while waiting for the opportunity to put more into the market. I have around 8-9 months of expenses (based on Jan's expenses) in my savings, which I think provides sufficient liquidity for me. Anyway, I should consider MMF as cash too, since they are equally liquid (though it's more risky than depositing in banks). I wish to consider dividend yielding stocks as cash too...but that will have to wait. I need to read up more before I jump in. Snake bitten investors are like that, haha!

Microsoft is buying over Yahoo at a premium of over 60% current price. Dow should be rallying strongly later. Perhaps we will have a good chinese new year week next week after all. Have a great weekend!


Createwealth8888 said...


That's good. I have been tracking my spending since 2001 and now also forcast my spending budget based on past spending habits, future expected spending e.g. children university education, high expenditure replacement such aircon, PC, TV, fridge, household repairs, medical, and etc till 75 years old for myself and spouse.

la papillion said...

Hi createwealth8888,

Haha, your forecasting period is really very long :) I'm sure you do check your forecast every now and then and adjust it accordingly.

Do you track your expenses on a daily, weekly, or monthly basis?

Createwealth8888 said...

I track my expenses on monthly basis. I am already 52 years old so I have to plan for my retirement fund and also my wife is not working.

Yes, I do review the forecast on yearly basis to add in inflation and future medical expenses which I believe that it is very difficult to cut.

skyalps said...

Hi lp! great to see you are tracking your expenses and income. I have been doing this since 2006 and it gives me a good picture of my overall net wealth. Everytime I calculate my balance sheet at the beginning of the month, I want to make sure that I am closer to my target net worth.

la papillion said...

Hi sky,

Wow, you still have target networth :) haha! Well, for me, as long as I earn $2 for every $1 I spent, I'm contented. Of course, I set myself a monthly and weekly income to attain.

Which also means I can also calculate my target net worth, haha :)

Createwealth8888 said...

I believe it is good to have target net worth or financial independence or any financial goal so that we could at least get out of the rat race if working.

The purpose of tracking of expenses is to know how much is needed to reach that target and for how long that sum of money could be draw down.