Tag Archives: Balance Sheet

FOUR Financial Lessons from the Homeless

New York is one of the biggest financial capitals of the world. Finance is everywhere in this city, whether in the billion dollar hedge funds that are making million dollar deals or the restaurant owners calculating bar tabs, brunch receipts or tenants saving for the unruly rent they owe their landlords at the start of each month. 

One lesson I have learned from observing the homeless on my street, is that being a pure minimalist has its benefits. These people carry with them only what they need and nothing more. It would be inefficient to carry around dead, excess weight. We as millennials need to understand why excess is bad and recognize how our spending habits are based on desire instead of necessity. If we all became more aware of the things that we buy and their ability to clutter our lives, we might start to realize that material goods do not help us meet our goals or delay the process.

The second lesson we can learn from the homeless is how we can market ourselves well to attract the attention of others. I regularly encounter homeless individuals on the subways and in the streets. They are holding signs that tell their story or are yelling at passengers about their specific misfortunes. Many of them have had a lot of practice doing this, so they know what works and what doesn’t. They are forced to put their best foot forward and try and try again to sell the bystanders on a few dollars of investment into them. They are essentially pitching themselves to an audience of investors, like you see startups do on Shark Tank. When you want money for an investment or business, or are trying to land the perfect job, you need to market yourself to your best ability. This means looking the part and connecting with the given audience on a personal and real level. The homeless live it everyday. Their survival depends on it.  Since yours doesn’t, if you were to apply the same sincerity and passion into improving your current state, you would likely get very far.

The third lesson is utilizing the resources around you to the best of your best ability. I was in the train station one time and a homeless man was cleaning all of his clothes in the bathroom sink. Since the station is a public facility, this was free to him. He was being resourceful. I also see many homeless people using public places for shelter or the public library for entertainment to pass the time and read or subway seats as beds. We as millennials also have boundless resources around us that will cost us little to no money to utilize things such as books, mentors, the internet, newspapers, other people in our field willing to help us if only we just ask. Many of us do not use these resources to our advantage as we should.

The fourth lesson is that homeless people ask for what they want. If asking doesn’t work with one person, they try and try again. They are relentless because they need to survive. They will badger so many people and most of the time it works. I know because I see so many people fall prey to their tactics and reach into their pockets to grab money. Its human nature to feel empathetic towards other people and want to help them out. Ask for what you want and if you get denied ask someone else.

The final lesson to consider is that homeless people use a cash based accounting model. These days everyone is in debt. Debt is a tool, but most of the time people, especially people our age, abuse this tool. Homeless people collect cash, use that cash and simply go and try to get more when they run out. They don’t just put their purchases on a credit card. People need to realize that we should only spend what we have available. Try carrying around a specific amount of cash each day, spending only what you need and nothing more. Don’t always be putting the little things in life on a credit card because it creates bad habits that are hard to stop.

 

Treat Your Life Like A Business With These 3 Statements

Businesses, like people come in all shapes and sizes. From big corporations, partnerships to sole proprietorships and LLC’s. These companies can range from businesses like Apple or Google to your sisters haircutting service or the local popcorn salesman on Main Street. You are a business, every day you make financial decisions and transactions with your finances to better yourself. You are constantly mirroring the acts of businesses all around you. Therefore, in order to be financially successful in your life you should always be thinking and acting like a business would, except instead working for a  product or service, you are in business for yourself and your product is a fulfilled life and financial security.

Budgeting with a ‘business sense’ is one of the tools that will get you there. A budget can be created by using the information from 3 different statements that businesses use everyday.  Like any business, you need to keep in touch with your accounting and finance department regularly in order to make smart life/financial decisions. This way you are aware of where your money is going and how you can make it work for you in order to get the best possible return. Using these statements or a financial tool like mint.com will help you keep track of your finances and how much you are spending and are going to spend on your “business”.

Income Statement

This is the statement that shows you your income in relation to your expenses. This statement usually is a single column report with income at the top showing your personal revenue. It doesn’t matter if the money is coming in from your job or other alternative sources of income., this just shows your inflow. The expenses are your outflow. The report will give you your NOI (net operating income) which is basically your personal profit. This will let you know if you are spending too much money. This way you can tell if you need to stop shopping in SoHo on Saturdays or buying too much late night pizza on the Lower East Side at 4am.

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(Click to Enlarge)

Balance Sheet

The balance sheet is your statement that tells you your net value at any given time. This statement breaks down your assets and your liabilities and what you physically own (equity). Here you will show your assets on the left column. These are things  like your cash, money that people owe you, your car, house, value of your investments etc. The right side has your liabilities. These are your debts, such as loans that you have yet to repay for a house or car, and/or your credit card debt. The left side is also where you put your equity. This is essentially your value or ‘net worth’. Your assets are going to equal your liabilities plus your equity. So the right side should equal the left. See below for a visual representation.

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Statement of Cash Flows

The statement of cash flows is important because this is where you are able to financially model where you will be at any given point in time.  this future value is based on certain assumptions such as how much you predict you will be making and how much you will be spending at a future point. This shows on a scale of time your income minus expenses.  It is usually a good idea to stay on the more conservative side because the future is never certain.  So it’s good to not overestimate income and underestimate expenses. Using this statement is helpful because you can see where in the future you will be able to afford more expensive things like a new car or vacation. This will keep you prepared. Click on the visual to see how this works.

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Even if you’re personal versions of these statements are on the more basic level that is okay. You are still making progress and will be more financially informed about your money. These are just power-ups to bring your budget to the next level. I would recommend updating them once a month, so you can always have an accurate sense of where you are. When finances are constantly on your mind you will be more self-aware when spending and save more money.