When creating wealth, your Financial Report Card is Your Financial Statement.
In school, your progress was measured with a report card. You could not continue on or move forward on to the next grade if you failed to make enough progress. Your teachers tracked and measured the success of your school work and activities regularly throughout the year and sent home progress reports and report cards. But what most people don’t realize is that once you leave school, your financial statement becomes your report card. It reveals or keeps track of how you’re progressing or doing in life financially.
For businesses (C-corporations for example), the tax code requires an annual financial statement each year: updated profit & loss statements and balance sheet, etc. But for the average person, there is no mandatory filing requirement (ie, regular checkup) and therefore most people are not even aware of their financial statement, the importance of a financial statement, or what a financial statement even is! It is not something you are sent in the mail or that the government or your employer or anyone else keeps track of for you (unless you’re working with a financial planner maybe).
Your banker however, will ask to see your financial statement in order to assess your level of financial intelligence or the amount of risk they perceive you to be. Your banker will want to determine your creditworthiness, he will want to examine your track record for how responsible and smart you are with your money. He will want to see over the years how successful you have been financially.
The better your financial report card looks, the faster you can move ahead, the more good debt you’ll be trusted with and able to borrow, the more favorable terms you’ll receive, and the wealthier you’ll become.
(And while your banker may not ask you for it by name – they know most people wouldn’t know what a financial statement is – your banker will ask you to provide all the information needed to compile a financial statement, like income, assets, liabilities, outstanding debt, etc and will compile it themselves, which you don’t normally get to see).
This lack of financial education is a major cause for all the debt and financial crises we hear about today, especially when you consider the incredible financial boom we had for so many years prior to this recession, where so many people made so much money, you would think they would be setup or better prepared to handle a downturn in the markets and the economy. This just goes to show that income does not equal wealth; it’s not how much you make that creates wealth, it’s how much you keep. And as we know during that period, the average savings rate for the country not only dropped to zero, it actually went negative – that is NOT a sign of creating wealth, but rather of speculation and gambling.