Create a Personal Finance Balance to Find Out Where You Are
If you are planning a financial makeover in 2019, the first thing you need to do is figure out where you are. And, as Kiplinger advises , one of the easiest ways to do this – and potentially detect possible cracks in your foundation in the process – is to create a balance.
“List all of your assets and liabilities,” writes Jaime Eckels, a certified financial planner. “List each asset or liability as named, with account numbers, interest rate charged, and current recipients. Provide as many details as you like. “
How you decide to do this is up to you. You can use a spreadsheet, a regular Google document, or plain old paper and pencil. There are tons of examples on the Internet if you search for “personal finance balance”.
What you have here is your net worth (assets less liabilities). It’s a useful number, but it’s good practice to have all of your financial information organized in one place and really know where you are in relation to debt and assets. Then you can set realistic monetary goals .
And this has another painful but practical implication. “If you are out of balance and something happens to you, finding your assets will turn into a treasure hunt,” writes Eckels.
Doing this once a year is probably a fairly accurate measure of financial fitness for most people, although Simple Dollar’s Trent Hamm takes this opinion :
Once a month I sit down, figure out all the numbers that might be a good indicator of my financial condition, jot down some explanations and save this document for later. Whenever I want to look at any aspect of my personal finance growth, I just need to pull out a few of these statements.
Here’s how to do it.
Put your papers together
Assets are what you own: cash (including money markets and CDs), retirement funds, investments, home value, car value, and personal property like jewelry, appliances, furniture, home appliances, etc. …
Obligations are what you owe: rent / mortgage payments, student loan debt, credit card debt, personal loans, etc.
Once you have all of your financial information as listed here , this should be a straightforward process. Otherwise, you will need to collect your bank statements, login details, debt repayment plans, etc.
Of course, the goal is to keep your assets growing steadily and your liabilities decreasing over time, but that’s okay if your net worth is negative at the moment. By writing down the number and planning how you can start increasing or decreasing the right column, you are on a solid financial footing.
If your plan for 2019 includes lower commitments, here are some resources we have on this:
- How To Pay Off Student Loan Debt While Saving And Investing
- How to pay off debt using the stack method
- How to Create a More Effective Debt Payment Plan
- Spend 15 minutes on personal finances every day
- Common debt traps for paycheck to paycheck living
- The first thing to do after paying off a large debt
And if your plan for 2019 is to increase your assets, you’re in luck: this will be the main theme of Two Cents this year. For now, here are some of the resources we already have:
- How to automate finances and save money
- How to Build a Simple Set-and-forget Portfolio for Beginners
- A Beginner’s Guide to Investing in Dividends
- Best advice on how to save as much as possible
- How much money do you need to save by age 35
- Ask for a raise using this formula
Once you see all of your assets and liabilities, you can make a plan for how to deal with the latter while inflating the former. You can set a calendar reminder to come back once a year, once a month, like in Hamm, or as often as you deem necessary.