Organize Your Finances
Being frugal will allow you to accomplish your present and future financial goals while allowing you to enjoy yourself today as well.
Organizing your finances may seem like a difficult, if not impossible, task. Consumers have more expenses today then ever before due to the variety of payment options that are available. From credit cards to payday loans, these finance options have found consumers who have used these tools irresponsibly, slipping further and further into debt.
Making Sense of Your Finances
The purpose of organizing your finances is to realize the following:
- How much money you make on a monthly basis.
- How and what you spend your money on.
- To identify ways in which you can save extra cash
- To plan effectively for your intermediate and future financial goals.
Don’t confuse being money conscience with being over frugal. Being frugal can be taken to great extremes. While that may be alright for some, you can be frugal without putting a vice on your pocket book. Many, such as myself and perhaps you as well, may like to go out on the town and splurge once in awhile.
By organizing your finances, you will be able to better save and allocate extra money to do both the things that you would like to do today, and the things you would like to do and or accomplish tomorrow.
Creating a Baseline for Financial Progress
Before we really dive into the strategies of financial planning, the first thing we need to do is create a baseline to compare our future financial progress to.
Calculating Net Worth
The best financial indicator of financial progress is your net worth. Net worth is simply what you are worth financially. You calculate net worth by taking the total cash value of all your assets, or the things that you own, followed by the deduction of all your liabilities or the things that you owe.
Difference Between Assets and Liabilities
To put a clearer distinction on the difference between assets and liabilities, we will outline a few of each to help you determine the difference.
As mentioned above assets are the things that you own. However, what you own and what you owe can get a little confusing sometimes.
A home is a perfect example and is considered an asset, but it is also a liability. When creating a financial baseline by determining your net worth, you need to record the equitable portion of your home’s value as an asset and the rest of which you owe, as a liability.
For example, if my house was worth $200,000 and I still owed $80,000 on the home’s mortgage, I would declare $120,000 as an asset, because selling the home tomorrow would yield the equitable portion of the mortgage that has been acquired through both appreciation over time as well as individual monthly payments.
Cars should be done the same way. With cars you will want to get the blue book value and compare that to what you may still owe on the auto loan.
Other Assets to Include
Other things that would be considered assets would be the current values in your checking and savings accounts, 401k’s or other retirement accounts. If you have any stocks, bonds or mutual funds you will want to be sure to include those in your asset allocation as well.
Other Liabilities to Include
Liabilities are a little more straightforward. Anything that you owe is considered a liability. Outstanding personal loans, payday loans, auto loans and credit card balances are all examples of liabilities.
The Final Calculation
Now that you have determined what your assets and liabilities are as well as the values of each, you will want to subtract the total value of your liabilities from the total value of your assets. The difference will be your net worth.
Below is an illustrated example :
Assets
Home Value (equitable portion) $120,000
Car (equitable portion) $1,500
401k $5,500
Savings Account $960
Total Asset Value = $127,960
Liabilities
Mortgage $80,000
Car Loan $4,250
Payday Loan $425
Student Loans $8750
Credit Card Balances $11,100
Total Liability Value = $104,525
Total Net worth = $23,425
Don’t be discouraged if your net worth equals a low or even negative value. The purpose here is simply to establish a base line that we can compare ourselves to later to see our financial progress over time.
This concludes Part I of this series. Determine your baseline or net worth and then come back to the blog for Part 2 of the “Frugal Finance” series posted courtesy of the payday loans blog at personalmoneystore.com
Good stuff! Very educational, and the end is absolutely right – negative net worth is very common. As often as not, a good deal of people have a negative net worth because they owe more than they have paid off, thanks to the advertising and finance industries efforts to make us all into new world slaves.
I helped my dad start his own blog and internet market his blog, since he’s retired and don’t have many things for his past time. He sometimes enjoys the work but most of time he feels like a burden since he does not know much about IT.
i have learn much more today about finances