Invisible Data, Weak Plan, Poor Outcome

The balance sheet is among the most rudimentary of financial tools. Thanks to its omnipresence nearly everyone can explain the difference between assets and liabilities as net worth. Mortgage applications, financial plans and corporate filings bear witness to the universal acceptance of this base unit of financial knowledge.


Test the point by answering this simple question. What’s the net worth of a family that  has no mortgages or debts and which has checking and IRA accounts that total $275,150. 

If your answer was $275,150 you would find universal agreement but, if you are doing personal financial planning, you and they would be wrong.

The likely reason for the error, as we perceive it, occurred at the dawn of financial planning as a profession. Nascent planners seeking a tool that could explain an individual’s essential financial position chose the balance sheet. Poor choice. Although it already existed as a proven contrivance it has such limited utility to individuals and families that elaborate planning software had to be concocted to compensate for the limitation.


The selection of a balance sheet as the baseline for planning although rudimentary was not elemental. Before establishing the balance sheet as a first look device, they should have restated the elemental definitions for assets, liabilities, time, distributions, and rebalancing in the context of the emerging profession. That is to say, in terms of an individual’s or a family’s life experience. Sweeping opportunities for change fall from this failure but for moment let’s limit our discussion to liabilities and the failure of its definition to account for the dynamic events that occur to individuals and families.

The criticism and correction are simple and can be bound together by adding a simple and descriptive phrase to the planning lexicon.  The phrase, “Family Obligations” adds breadth to the existing notion of what constitutes a liability without diminishing its original utility.

Any new balance sheet will list liabilities in the usual way then add a new section in the Liabilities column under the sub-heading “Family Liabilities”. The additional items will include the present value of the cost of retirement, the present value of the cost of tuition expenses and the present value of the cost of weddings as major examples. Others can also be included such as the present values of the cost of heretofore hidden liabilities such as automobile and roof replacements and of course, the ubiquitous and ridiculous oil burner.

Rational for the new approach:

Nearly everyone, including most of us planners see retirement money as an asset which, of course it is but they fail to see it’s corresponding liability because we don’t present it to them. The present value of the future cost of retirement, tuitions and weddings belong on the financial planning balance sheet so people can see what they face and plan accordingly.

The inclusion of Family Obligations is a hallmark of our method, Dynamic Mapping. Family Obligations include such off-balance sheet obligations as children’s braces and tuition, and items like cars and roofs that have to be periodically replaced. Since these are not legal debts they are omitted from balance sheets by CPAs and planners—even as footnotes. This oversight is a planning weakness that needs our collective attention.





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