Kick Start Your Finances

In order to kick start your finances and plan your financial future effectively, the first step is to find out where you stand today. Accurate and efficient "measuring" is essential to long-term success.

But what does it mean "to know where you are" when we are talking about personal finances?

There is one important tool that help us figure that out: the personal Balance Sheet or Net Worth Statement. This is a tool that is also important to have if you’re seeking a loan or trying to make a major financial decision. The “net worth” is the clearest indicator of your financial condition at any given point.

The Balance Sheet or Net Worth form helps you identify and calculate all your assets and liabilities to determine your net worth. It is a great tool to see if you are on the path to meeting your desired financial outcomes. The Balance Sheet or Net Worth statement is completed as of a point in time, and reflects the person’s or company’s position at that moment.

• The Balance Sheet, or Net Worth statement, is a tool to accurately calculate your financial worth – the value of what you own minus what you owe – and gain a clearer understanding of your financial situation.

Your net worth is the difference between all the things of value that you own (your assets) minus all the debts you owe (your liabilities).

• If you have more assets than liabilities, you have a positive net worth, which is a good thing...

• If you have more liabilities than assets, you have a negative net worth. At this particular point in time, you owe more than you have. This is not such a good thing, but it's information you need to know so you can take appropriate actions to change it.

What are typical assets?
Short term assets: cash, balance on your checking account, savings, brokerage accounts, investments such as stocks, options, etc.
Long term assets: value of personal property and investments such as houses, jewelry, art and antiques, bonds, partnerships, pension funds, IRA, 401k, etc.

What are typical liabilities?
Short-term include all your current bills, rent, medical, dental, utilities, credit cards and any personal, furniture and car loans, taxes, etc.
Long term loans may include loans against stocks, bonds, mortgage debt, home equity loan and any other loans for vacation homes, boats etc.

Why is it important to "know where you are financially"?
When you go on a journey, you need to know where you are and your destination to define which path to take. You can take the highway, the scenic route but ultimately, you need to know beginning and end points to get started.

Sometimes, people are so scared to see how much they owe or how much they are spending that they get stopped. A couple of times, it will take courage to start, but when you are done, you will feel better. Whatever your financial situation is, it is what it is... It is a fact, it does not mean anything about you, if you are a good person, successful or not. It is a snapshot of your financial situation. I've seen people get relieved after the first time they did their net worth because the situation was not as bad as they thought. In other cases, it was bad, but people got empowered because they took the first step in taking charge of their financial future. Either way, the net worth will provide you a snapshot of the consequences of your choices to date.

Once you have the net worth, starting defining what you want it to look like int he future and what actions you can start taking to get there. In some cases, it will involve adjusting your life style so you can save more, in others it may involve investing your money better. So go, ahead, organize your records and get started.