Your financial health

Your financial health is gauged by a few measures; cash flow, balance sheet, and credit rating. In my opinion, these are the most important measures, and these are often misunderstood by the average consumer.
Cash flow is a very strong indicator of health because it shows where your money is earned and spent. Operating, investing, and financing activities are all covered.

• Operations (think primary income and bills)
• Sales revenues
• Equity/debt sales as derivatives
• Loan interest
• Vendor and employee payments
• Investing (think savings and passive interest)
• Asset purchases (buildings, securities, land, etc.)
• Loans received from customers
• Merger payments
• Financing (generally only for business purposes)
• Proceeds from issuance of short/long debt
• Dividend payments
• Stock buybacks
• Principal repayments (debt)
• Sale of company shares of stock

It's clear that without a strong balance sheet, your cash flow would be misguiding, since the balance sheet shows the historical totals of each asset as opposed to the changes made this year alone. The balance sheet shows the total number of assets equaling the combination of liability and equity. Assets make the money for your company, so they should outweigh liabilities alone, and the difference is the profit the company realizes (retained earnings). The balance sheet describes how liquid or indebted a company is, giving year over year comparisons also.

If both of these are in tune, you should have a strong credit rating. Every entity and person in America and throughout the world is required to have a credit rating. Entities are rated by such agencies as Moody's and Standard and Poor's, while consumers are rated by Equifax, Experian, and Trans Union. The score is scaled from 150-900 and spans 7 years. The factors representing your score are difficult to enumerate, but in general they are employment, credit and payment history, outstanding debt, and amount of Credit inquiries. Bankruptcies and foreclosures take 10 years to come off. Maintain a balance of credit that is less than 30% of your total limit. Higher than 30% may incur a penalty.Every 12 months, you can request a copy of your report under the FCRA.

So you see how important staying organized can be when you decide to become financially competent. You may find these boring, overwhelming or both, but your cash flow statement, blanace sheet, and credit rating can dramatically change your habits and improve your savvy, making them investments in themselves.