But there are some simple ways you can organize your income and expenses in a way that contributes to your financial success. This four-step guide will help you to determine your net worth, set financial goals, track your spending, and create a budget.
Determine Your Net Worth
Your net worth—the total of all your assets minus your liabilities—can tell you a lot about your current financial health, and it can also help you to plan for your financial future. Your net worth is the cash you would pocket if you were to sell everything you own and pay off all your debts. If you take a hard, honest look and determine this simple figure, you can work backward to create a budget, set financial goals, track your spending, and, ultimately, take control of your finances. When making your net-worth calculations, these items are considered assets:
Cash (savings and checking accounts)Investments, including stocks, bonds, securities, and retirement accountsReal estate equityVehiclesArt, jewelry, collector’s items, and other valuable items
The following items are liabilities:
Credit card debtStudent-loan balanceBalance remaining on your mortgage or car loanAny other debt
Add up the value of your assets, then add up the value of your liabilities. Subtract your liabilities from your assets; the number you get back is your net worth. After finding out what your net worth is right now, get in the habit of recalculating it yearly or whenever there is a significant change to your finances.
Set Financial Goals
To get your finances in order, you first need to decide what you hope to accomplish. Do you want to save for your retirement, a vacation, your child’s college education, a new car, or a house? Do you hope to pay off debt or build up an emergency fund? Spend some time identifying your financial goals—big and small—and put them on paper. Think about how you’re going to reach those goals. A financial plan can help you get ready for whatever that big expense is with minimal worry. If you take the time to plant the seeds for your future by creating a plan with clear goals and a specific timeline, you will reap the rewards years down the line.
Track Your Spending
Do you know how much you spend each month? If not, now is the time to find out. Whether you decide to pore over bank statements from the past few months or track your spending over a one-month period, knowing where your money goes can help paint a clear picture of your spending habits. Are you spending too much on incidentals, such as coffee and vending machine snacks? Are you falling behind on your savings goals or spending more than you make? Looking at the hard numbers may show that small things really add up. By the end of the month, you should have a better idea of where you’re spending money and where you may be able to cut back.
Create a Budget
Once you have established a list of financial goals and have taken a close look at your spending habits, it’s time to create a budget that reflects how you want to spend your money. To create an effective budget, start with a budget worksheet, where you’ll gather all of your financial statements, record your sources of income, create a list of monthly expenses, and make adjustments to those expenses. Then, you’ll want to learn how to budget your annual spending and break that down to develop a monthly spending plan.
