For many people, one of the biggest sources of disagreement and aggravation is the subject of personal finances.

Do any of these statements sound familiar?

• “The money runs out before the month does.”
• “Too many expenses, not enough paycheck.”
• “The harder I work, the more behind I get.”

A person’s ability to manage their money is called “financial literacy”. Accountants have very high financial literacy as they manage money on a daily basis and they are able to use financial statements to do it well.  

We all need a basic amount of knowledge and ability to understand our finances.  Two of the most common documents used to describe the financial state of a business, a family or a person, are the balance sheet and the income statement.

You should understand what a balance sheet and income statement are because they are helpful, common tools that describe your financial picture.

Your Balance Sheet

A balance sheet is a financial statement that describes your net worth at a certain point in time. It lists assets (what you own) on one side and liabilities (what you owe) on the other. The balance between what you own and what you owe is called equity, or net worth.

A balance sheet becomes important when you are dividing up family property.  It will be helpful to have a complete list of the things that your family owns and a list of your family debts. You will have the chance to make a balance sheet later in this section of the course.

Your Income Statement

An income statement describes the flow of money during a specific period of time – like a monthly budget. It lists income first (money that comes in) then expenses (money paid out) and finally, it shows the balance between the two. If have more money coming in that is a profit. If your expenses are higher than your income, that is a loss. 

An income statement is important to do when you are talking about child support and spousal or partner support.

For a lot of people budgeting is pretty simple:

The money comes in > The money goes out.

The scenario doesn’t change much from month to month. Income is generally fixed, and the outflow of expenses only seems to increase. When too much money gets spent, the shortfall gets added to the debt load. As the debt load increases, more of the money coming in goes to paying the debt, which leaves less for spending, which increases the debt. It’s called the debt cycle and it’s pretty difficult to get out of it.

When money is short, there is stress deciding what to spend the money on, and when, and how much, and where, and on and on.

Getting control of your finances means a lot more than just getting control of your money. It means getting a handle on your habits: what you think about money and how you spend it. You need to balance your short-term and long-term goals. Not only can getting control decrease much of your stress, it can also help you prepare for the future.

During the separation process you will be negotiating finances, the division of property, and, in some cases, support for your children and possibly yourself. It is important for you to understand the separation process thoroughly and to recognize all the options you have available to you before making any decisions concerning your future.

It is important that knowledge – rather than emotions or other people’s opinions – guide you. Informed decisions are more likely to produce long terms results that are beneficial to each of the former partners and to the children.

So where do you start?

Take some time now to do a quick income statement for this month. The form on the next page will help.