Create a statement of net worth
If you don’t measure it you cannot improve it. A statement of net worth will let you see your strengths and weaknesses and show you threats as well as opportunities (the old S.W.O.T. analysis thing). What are your current assets? What are your current liabilities. A simple statement of Net Worth answers these questions. Once you’ve set this up you can use it to measure improvements. Are you assets growing or shrinking? If so, which assets are up? Which ones are down. How much liability do you own? Can you create a strategy to eliminate it? Build a Statement of Net Worth so you can get answers to these questions.
Create a statement of cash flow
Do you ever wonder where you spend all of your hard earned money? Do you care? You should. If you don’t keep tabs on all those expenses you’ll soon find out life is costing too much. Why wait until you’ve done the damage. Create your own personal statement of cash flow today. It measures your income against expenses. It will tell you how much you’re spending in different areas. It’ll help you set up a savings and investing strategy. Like I said earlier… if you measure it you can change it. So get to measuring you income and expenses.
Stop the spending madness (A.K.A. plug those spending holes)
Let’s face it, we all have frivolous expenditures. But sometimes we need to stop the madness and reboot. Look back at your statement of cash flow. Reduce some of the silly stuff. Look at that statement of net worth… can you use some of the cash flow to pay off those debts? Get busy.
Take control of your debt… or suffer its wrath
We mentioned liabilities earlier. Liabilities is a longer word for “debt”. Do you control your debt or does your debt control you. If you don’t make a deliberate effort to manage your debt it can easily put you into a terrible financial condition. If it’s out of control then reel it in. This is where building your personal financial statements are beginning to pay off. You can clearly see your liabilities (debt) and you can clearly see your cash flow (income/expenses). Now it’s time to create your budget. Budget is not a dirty word… it becomes your best friend when you want to build wealth. If you have debt, use your income to pay it off, then get back to buying those luxury items (latte anyone?)
A special savings account (A.K.A. an emergency fund and a sinking fund)
Life’s hiccups can trip you up if you’re not prepared. Follow this technique to reduce those financial disruptions. Set aside an amount for quick emergencies (e.g., washing machine breaks, air conditioner goes out, new tires on care, etc). This amount can be between $1,000 and $3,000. It doesn’t need to be a large amount, just enough to cover common items. Also, keep enough in an account to cover 3 to 6 months of fixed living expenses (you’ll only find this out by doing a statement of cash flow). If yo’ve done the work we discussed earlier then this is easy to figure out.
Guard your credit… at least keep an eye on the thing
Credit fraud is obviously a growing concern in our society and there is no one who will, or should be, more diligent at protecting it than you. Go to annualcreditreport.com, set up an account, and pull your report. There are three major credit reporting agencies and all three are in this site. You can pull one report annually from each of these agencies. That’s three per year total. Go check it out and look for suspicious activity on your reports.
Evaluate your risk
Life is fun… but let’s face it, things can turn on a dime… and quick. Make it a point to keep risks in check. Be sure to have at least the minimums for auto coverages. Make sure you have enough life insurance. This is often overlooked and even though the likelihood of death is small, it’s still possible. If you have a family and little to no life insurance… shame on you. You’re family will suffer enough emotionally if you die, why make them suffer financially as well. Start by looking at your company benefits. Get the amount you need or the maximum offered. Then go to an outside, independent, insurance agent for the rest. There are lot’s of good quote websites out these. And by the way more than 90% of the people reading this will need term, don’t get caught up in buying a whole life, universal life et. al. I don’t sell life insurance but I can advise on it. Feel free to call for answers on this.
Setting up and/or evaluating retirement accounts
If you are depending on someone or something else to take care of you in those golden years then “wake up” from your slumber and get a plan together. You’ll be glad you took the time to do this when retirement gets here. You need a plan for accumulating money in retirement accounts (401k, IRA, etc). You need a different type of plan for spending down your money while in retirement. Do you know of your employer offers a 401k plan? A 403b plan? How about a deferred comp, stock option, or stock purchase plan? Get busy and find this out. You should also know what the company match is if you do have a 401k/403b plan.
Get your investments in order
Can you answer these questions… what investments do you currently have in your accounts? If (actually, when) we have another market downturn what’s your proactive plan (even if it’s doing nothing)? Many people have no idea what they actually own when it comes to their investments accounts (how much and how many stocks they own, what is the tax consequences of each account, how many and what type of bonds they own… and the list goes on). You need to have an idea of what your doing for the long run. How much risk are you wiling to take and for how long. Answering these questions can go along ways to helping you build out a personal portfolio of investments designed for you and your financial goals.
Estate Planning is for everyone
You do not have to be rich to need Estate Planning. Don’t be caught dead without these documents in place… a Will, and a Trust if needed. What if your incapacitated do you have an Advanced Directive (AKA Living Will) or Power of Attorney documents? Do you have minor children? Who will be their guardians if death occurs to the current guardian (i.e., mom and dad or whoever else). This can be a big fat mess if you do not plan ahead of time. It’s simple and painless to get these documents in place. If you don’t have them, get them. Call if you need a little more direction on this.