The Hidden Side of the Balance Sheet – Part 1

The Hidden Side of the Balance Sheet – Part 1

My guilty secret

A while ago I was scrolling through the news feed of my favourite social media channel. Scrolling past the photos of elaborate brunches and declarations of love for locations, bands and charities, my mind involuntarily focussed on one article. The image was of a well dressed, clean shaven young person, sporting a crisp pink shirt and tailored jacket. His eyes twinkled a glint of self confidence. The click bait title championed “Multi-Millionaire by 30 – What He Can Teach Millenials about Making Money in Real Estate”.

I tried to scroll past but I couldn’t help swallowing the hook. I clicked. Ten minutes later, I’d swallowed guilt, and I’m ashamed to say, a little bit of envy. I walked away from my tablet deflated and feeling a bit inadequate.

The hidden side of the balance sheet

In this two-part post, I’d like to examine articles like this from a slightly different perspective. That is, the hidden side of the balance sheet.

We’re taught from a young age to recognise the pillars of success from the assets side of the balance sheet. It seems like the stuff that someone has on the outside reflects how successful they are. The 30 year old with several properties. The high-flying executive with the top job, and the mansion, top of the range car, and designer suits. The second holiday home. The third luxury car. The 4WD, caravan, heck even the boat (even if you don’t like fishing). The luxury designer poodle. In other words, what you’ve got. But we never hear about the other side: what you owe.

‘What’s a balance sheet?’ I can hear you ask, if you’re not an accountant. Balance sheets are lists of the assets and liabilities of a business or a company. They’re not often used in personal finance. But the basic concept still applies. It’s basically everything you own, minus what you owe. It looks something like this:

Example

YUMMY CHOCOLATES 101 BALANCE SHEET

Assets (Own)

Cost

Liabilities (Owed)

Cost

Stock: 100 kg of yummy chocolate

$100

Money borrowed from Evil Bank to buy yummy chocolate

-$100

TOTAL

$100

-$100

Actually, this table looks nothing like a proper balance sheet, but I’m not apologising because (a) I’m not an accountant, and (b) you get the point.

On one side, there’s what assets Yummy Chocolates has: 100 kg of chocolate.  On the other side, there’s what Yummy Chocolates owes: a $100 loan to Evil Bank for buying the chocolate.  In order to really own the 100kg of chocolate, Yummy Chocolates needs to sell the chocolates and pay back the $100 borrowed from Evil Bank.

So what does this have to do with conventional stories of success, the ones on what stuff people have to show how successful they are?

Everything.

This post is so long I’ve had to cut it in two.  So join me next week as we explore Part 2 of the Hidden Side of the Balance Sheet.  In the meantime, keep thinking for yourself!

Leave a Reply

Your email address will not be published. Required fields are marked *