Oluwafemi Olafusi Written by Oluwafemi Olafusi · 3 min read >
Compare CFA with PFA

One of the most exciting subjects so far in my Masters of Business Administration (MBA) at Lagos Business School (LBS) is Corporate Finance Account (CFA), mainly because I am an engineer. After attending five CFA classes, the figures that usually appear on the financial statement that look complex to me now look simple. Special thanks to my resourceful and seasoned Faculties who made me an Analyst to make sense of the figures in Financial Statements and deduce the health, performance and operation of an organization.

Now I realize that the CFA has always been part of my daily and personal life as Personal Finance which I will call Personal Financial Accounting (PFA) for this post. PFA is mainly about the money we earn or make, our income, what we spend, save, and invest, what we pay as debt and the protection we have for our money. We rarely record and report these activities as it is in CFA. We rely only on a few records kept by our bank as Bank statements or investment banks and others.

We want to be prudent with our spending, but merely looking at bank statements as the only record cannot help us. There is rarely a way to do some form of analysis to show how we have been performing in handling our money. We do not keep statements and sheets to use the data to compare one item to the other and gain insight into how prudent we have been with our money or investment. What is the percentage increase or decrease for each item over a period?

Doing something New

Creating tables for personal finances

I started seeing some CFA in my PFA, but only If I could begin to keep records or statements or categorize my finances as done for a business. The first step as a Financial Analyst to design financial statements for personal finances. I firmly believe doing this will bring a measure of financial literacy, which is the ability to make informed decisions about our money whether big or small. Financial literacy involves understanding what it is, why we have it, and how it works. It also helps us to make good use of that money—how to save it wisely, invest in our future, and make the most of our earnings.

As part of our Personal Financing Accounting, we pay our bills, do our jobs, and make purchases—but rarely understand how those things impact each other or the big picture of where our money goes. As CFA requires, every transaction must be recorded and evaluated; we can start by asking ourselves simple questions.

•             How much do I spend monthly or yearly on rent?

•             How much do I pay monthly on electricity, gas etc?

•             How much has my organization saved me on retirement savings?

•             What are my debts, and how much do they cost?

A great place to start is by categorizing and recording our financial obligations: rent, food, fuel per month for a generator, fuel per month for our cars, utilities (electricity and gas), insurance (health insurance, car insurance, etc.), and entertainment in an Excel Table. When you record the budget against the actual amount spent for each item over a period, you can perform vertical, horizontal and ratio analysis on all the items

New Financial Statements

Discovering New Analysis

We can have five significant categories of Personal Financial Statements. There would be different items under each category in each column against the monthly period. Graphs can be drawn with the items under each category against one another. I suggest the following Personal Financial Accounting Statements:

1.            Income Statements

•             Salaries

•             Bonuses

•             Pensions

•             Dividends

2. Spending Statements

•             Rent

•             Mortgage payments

•             Taxes

•             Food

•             Entertainment

•             Travel

3. Saving Statements

•             Physical cash

•             Savings bank account

•             Checking bank account

•             Money market securities

4 Investing Statements

•             Stocks

•             Bonds

•             Mutual funds

•             Real estate

•             Private companies

•             Commodities

5 Protection Statements

•             Life insurance

•             Health insurance

I put these figures in an excel table and input data for each item in the past five years for the ones I can remember or calculate, I got exciting information and was able to perform vertical, horizontal and my own defined ratio analyses. One of the compelling ratios is the one I named Net Real Estate Ratio, diving Net Salary by Net Rent and Net Savings Ratio, diving Net Salary by Net Savings Bank. How beautiful it would have been to share my numerous analyses in this post, but it is my Personal Financial Statement; I am not going to make it public. Do you own to see your CFA in your PFA.

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