![where are you now net where are you now net](https://cdn.24.co.za/files/Cms/General/d/8078/2f793e3d58a54736ad6b2b1109e99aa7.jpg)
Though Joe is still in an early stage of his financial life cycle, he has identified and structured his goals fairly effectively. Just what are Joe’s goals? We’ve summarized them in Figure 14.8 "Joe’s Goals", where, as you can see, we’ve divided them into three time frames: short-term (less than two years), intermediate-term (two to five years), and long-term (more than five years). He knows, of course, that it makes sense to have some cash in reserve in case of emergencies (car repairs, medical needs, and so forth), but he also knows that by putting away some of his money (probably each week), he’s developing a habit that he’ll need if he hopes to reach his long-term financial goals. We know from Joe’s cash-flow statement that, despite his limited income, he feels that he can save $1,200 a year. Step 2: Set Short-Term, Intermediate-Term, and Long-Term Financial Goals While your net worth statement lets you know what you’re worth-how much wealth you have-your cash-flow statement lets you know precisely what effect your spending and saving habits are having on your wealth. Ultimately, your net worth and cash-flow statements are most valuable when you use them together. Your cash-flow statement, then, provides another perspective on your solvency: if you’re insolvent, it’s because you’re spending more than you’re earning. Each monthly payment on his credit card balance, however, is an outflow that must be recorded on his cash-flow statement (according to the type of expense-say, recreation/entertainment, food, transportation, and so on).
![where are you now net where are you now net](https://pbs.twimg.com/media/FFDb7BWWQAAVHYp.jpg)
![where are you now net where are you now net](https://wearesocial-net.s3.amazonaws.com/uk/wp-content/uploads/sites/2/2020/01/01-Global-Overview-–-DataReportal-Digital-2020-Global-Digital-Overview-Slide-8.png)
When, for example, Joe used his credit card to purchase his computer, he didn’t actually pay out any money. Remember, too, that you must figure both inflows and outflows on a cash basis: you record income only when you receive money, and you record expenditures only when you pay out money. Remember that when constructing a cash-flow statement, you must record only income and expenditures that pertain to a given period, whether it be a month, a semester, or (as in Joe’s case) a year. We are, however, willing to give Joe the benefit of the doubt: Though he’s incurring the high costs of an education, he’s willing to commit himself to the debt (and, we’ll assume, to careful spending) because he regards education as an investment that will pay off in the future. Moreover, he’s in the black only because of the inflow from student loans-income that, as you’ll recall from his net worth statement, is also a noncurrent liability. Joe has been able to maintain a positive cash flow for the year ending August 31, 2012, but he’s cutting it close. If you happen to have negative net worth right now, you’re technically insolvent, but remember that a major goal of getting a college degree is to enter the workforce with the best possible opportunity for generating enough wealth to reverse that situation. At this point in the life of the average college student, positive net worth may be a little unusual. Joe is in no position to buy a house, but for most people, their mortgage is their most significant noncurrent liability.įinally, note that Joe has positive net worth.