Are you a saver or a borrower? Will your answer be different ten years from now? Good questions and important ones. Your future prosperity is at stake. Being financially informed is not only about knowing what side of the ledger you are currently on, it's also about knowing where you ultimately want to be.
The two most basic tools of personal financial analysis are the net worth and cash flow statements. These tools, which we outline below, can show you whether you are currently a saver or borrower. They also show you the possibilities and consequences as a result.
Being a saver means you live within your means. However, it's important to consider what you are doing with your savings. You can grow your net worth by using savings to pay down debt or buy assets that tend to appreciate in value.
Being a borrower means you live beyond your means. This is clearly unsustainable over the long term. It means that over time, your net worth will decrease because you are sustaining your lifestyle by accumulating debt or by selling off assets. Ultimately, being a perpetual, out-of-control borrower could end in bankruptcy.