In order to start on the journey to Financial Peace of Mind, you first need to determine where you are. This means that you need to assess your financial situation. This might seem scary, but no matter how good or bad the situation, the more you understand the situation, the easier it will be to improve it. You may have heard the saying that a problem understood is a problem half solved.
After completing a financial assessment, you will have taken the first step to understanding where you are with your money. You can then set realistic goals for you and your money
Today, we will look at fundamentals of a financial assessment, and in the next blog post we will discuss other aspects of a personal financial assessment that you need to get a handle on.
Financial Assessment
Assets, Liabilities and Net Worth – These accounting terms might seem intimidating, however, they are quite simple.
- Assets – Things owned. List what you own.
- Liabilities– Things owed. List what you owe.
- Net Worth – Assets minus Liabilities. If you sold or converted all of your assets to cash and paid all of your debts, this amount is what cash would be left over.
Income and Expense – Again these are accounting terms. Don’t let them intimidate you.
- Income – Money coming in. List your take home pay and income from all sources.
- Expenses – Money going out. Review your spending for the last several months and figure a typical month’s spending. Review your check register, bank statement and cash spending to make sure that you have accounted for all spending.
Tracking Income and Expenses – The idea is to record all transactions. You can use pencil and paper to keep track of your income and expenses, or if you are comfortable with computer spreadsheets, build a spreadsheet. A Check Book Register is a good method, giving you space for date, check number, payee description, amount an running balance. Whatever method you choose, just make certain that you are keeping up with all money coming in and going out.
Budget – Your budget is your plan of how you will spend your money before you even receive your money. Reflect on your past month or months of your income and expenses. Write your best estimate of what you expect to spend. For instance, if for the past month you have spent $450.00 on groceries, your projection for the upcoming month will be in the $450.00 range. It will take some practice. In fact, if your are beginning to budget, it will probably take three months or longer for your budget to come into focus (accurately reflect your spending). Be patient with yourself but be persistent with your budget.
Need help with the components of a financial assessment, contact Russ.
russ@russbellmoneycoach.com