Summary
Assess your current financial situation by organizing and reviewing personal financial records related to your income and your debt. Start the assessment process by asking yourself:
Create a financial planning information list that includes your bank accounts, legal, personal and other financial information. If you have a spouse or partner, be certain to include their financial information.
Compile information into a net worth statement that includes all of your assets, such as income, investment worth, net property value and the estimated value of collectibles and jewelry.
Create a cash flow statement that includes the total of your assets and income sources minus your debts or liabilities. Compare your income to your expenses during a specified period, such as one month, six months, and one year.
Develop a financial plan that includes long-term and short-term goals that can serve as action steps to reach your ultimate goal.
Goals should be measurable so you can identify if you have reached the goal as well as a timeframe for reaching your goal. For example:
Effective goal: To save $20,000 over the next three years to use as a down payment for the purchase of a house. A goal should not be so general that you do not know what you are attempting to accomplish. For example:
Ineffective goal: To save more money.
Develop a personal financial budget to identify the best ways to spend your income.
Develop a plan to put away money towards an emergency fund and compile a list of ways to avoid debt problems.
You may decide to set up a savings account to be used only for financial emergencies or use only one credit card account, only when absolutely necessary, while paying off your credit card debt.
Identify ways in which you will be able to reduce expenses to increase savings.
Assess your current financial situation by organizing and reviewing personal financial records related to your income and your debt. Start the assessment process by asking yourself:
- What is your current financial situation?
- Do you have concerns about credit or loan debt?
- What is your current credit status?
- How would you handle a financial emergency?
- Do you need to take steps now to create future financial security?
Create a financial planning information list that includes your bank accounts, legal, personal and other financial information. If you have a spouse or partner, be certain to include their financial information.
Compile information into a net worth statement that includes all of your assets, such as income, investment worth, net property value and the estimated value of collectibles and jewelry.
Create a cash flow statement that includes the total of your assets and income sources minus your debts or liabilities. Compare your income to your expenses during a specified period, such as one month, six months, and one year.
Develop a financial plan that includes long-term and short-term goals that can serve as action steps to reach your ultimate goal.
Goals should be measurable so you can identify if you have reached the goal as well as a timeframe for reaching your goal. For example:
Effective goal: To save $20,000 over the next three years to use as a down payment for the purchase of a house. A goal should not be so general that you do not know what you are attempting to accomplish. For example:
Ineffective goal: To save more money.
- While identifying goals for your financial plan, ask yourself:
- What do you want to accomplish in terms of your long-term personal financial situation?
- When do you want to reach each of your financial goals?
- What short-term goal steps do you need to take to accomplish your long-term financial goals?
- Do some financial goals take priority over other goals?
Develop a personal financial budget to identify the best ways to spend your income.
- Include necessary expense categories such as:
- Savings and investments: emergency fund, 401(k) and IRA contributions, savings and education funds
- Home expenses: mortgage or rent, home repairs, maintenance and improvements
- Utilities: electricity, water and sewer, cooking and heating fuel and telephone
- Food: groceries and eating out
- Health and medical: fitness plans, dental and medical appointments, special services and medications
- Transportation: vehicle payments, fuel and oil, vehicle repairs and maintenance
- Also include the following items in your budget:
- Insurance: medical, long-term disability, mortgage or rental, vehicle and specific personal property coverage
- Debts: credit cards, student loans and other loans
- Family expenses: child care and support payments
- Entertainment and recreation: hobbies, vacations, cable services for home and date expenses
- Pet expenses: food, grooming and veterinarian services
- Taxes: federal and state, including quarterly estimated tax payments if you are self-employed.
- Other expenses: spending that does not fit into other categories such as clothing, shoes, grooming, gifts and donations
Develop a plan to put away money towards an emergency fund and compile a list of ways to avoid debt problems.
You may decide to set up a savings account to be used only for financial emergencies or use only one credit card account, only when absolutely necessary, while paying off your credit card debt.
Identify ways in which you will be able to reduce expenses to increase savings.
- Define which of your current expenses are:
- Necessary
- Discretionary (useful, but not necessary)
- Not necessary
- Watch for signs of a serious debt problem and seek assistance if the following apply to you:
- Late payments for mortgage or rent that result in extra penalty fees
- Credit card accounts that have reached the credit limit
- Late credit payments resulting in increased interest rates and penalty fees added to your bill
- The need to borrow money to pay your bills or day-to-day expenses
- Overdrafts on your checking account
- No savings built up
