Welcome back to Day 2 of the Money for Life Spending Management E-Course!
Congratulations on completing all your tasks from Day 1!
Now that you have your financial fitness score, have set your goals, and have made your commitment to spend less than you make, you are ready to take the next step! You now know more about your attitudes and habits surrounding money, spending, debt, and savings; And by setting your financial objectives, you also now know what you are trying to accomplish. For the next step, let’s figure out where you currently stand.
In Day 2, you will work through creating a Net-Worth Statement and a listing of your debt obligations. You will also learn about the envelope budgeting method, the method we will use to create your spending plan in day 3 and 4.
The following checklist will help you keep track of the tasks that you will complete during today’s lesson:Create a Net-Worth Statement
List out your Debt Obligations
Read The Secrets of Envelope Budgeting
Create a Net-Worth Statement
Before you can determine what changes you need to make in your financial life, we need to get a realistic idea of where you stand today. Let’s start with your net-worth.
Creating a Net-Worth Statement will help you to get an idea of the big financial picture, as it pertains to your assets, your debt, and your overall net-worth.
Remember, when you have completed this form, don’t be discouraged if the number is lower than you expected. Frankly, if you are in the positive, you are doing better than many in today’s world!
Download the Net-Worth Statement Worksheet by clicking here, and then follow these three easy steps to fill it out:
Step 1 – Create a list of your assets
The first list you will want to create is a list of your assets. Let’s start with your cash-equivalent assets. This would
be any asset that is in cash or could be quickly turned to cash. Examples of this type of asset are:
- The balance in your checking accounts, savings accounts, 401(k) accounts, and IRA accounts
- The cash value of life insurance policies
- The current market value of stocks, bonds, or other marketable securities
Another item you may include in this list is money that is owed to you, if you have a reasonable likelihood of collecting the outstanding balance.
Second let’s move on to your real estate assets. Your real estate holdings will include the market value of your home and any other property that you own. List the approximate value of your home and property from a competitive analysis or an appraisal.
The third section of assets is the listing of your personal property. This would include the current value of any vehicles you own, furniture, and other high-priced personal items such as recreational vehicles, jewelry, collectibles and even electronics. For current value of your vehicles use a site such as www.bluebook.com. To estimate the price of other personal property, deduct 25% from the purchase price for each year you have owned the item. Jewelry and collectibles are the exception to this, they often retain their value, or in some cases they even increase in value over time. Using the purchase price of these items would be a safe bet for this exercise.
Step 2 – Complete a list of your debt obligations
Access the Debt Obligations Worksheet by clicking here, or simply list the debts on the worksheet you are using for your Net-Worth Statement. In Day 5 we will use your list of debt obligations to create a Debt Roll-Down Plan, so be sure to keep that list where you can easily find it.
To create your list of debt obligations, or liabilities, you will include items, such as your mortgage, your car loan or loans, a home equity loan if you have one, etc. Don’t forget that debt consolidation loan you took out last year to pay off your credit cards.
Next you will want to list the balances owed on any personal loans, student loans, charge accounts, credit card accounts, and any other type of consumer debt. You should be able to find the current balance for each of your debts by checking your most recent statement or by checking for the balance online.
Step 3 – Calculate your net worth
Now that you have your assets and liabilities clearly defined, you will want to total each list – add up the assets, and then separately add up the liabilities. Next you will take the total liability amount and subtract it from the total asset amount. The resulting number is the approximate value of your current net worth.
Don’t forget, many people will have a low number, or even a negative amount. If you have a positive number, that is great! Don’t be discouraged, however, if the number is lower than you expected. With some proactive planning, you can get that number to increase more quickly than you realize.
After completing your Net-Worth Statement, place the date at the top and keep it handy. Every few month, or perhaps twice a year, repeat this exercise so that you can see the progress you are making. You will be amazed at how quickly you can make changes when you have become committed to following the path to financial fitness.
Start Down the Path Toward Change
Now that we have a clearer picture of where you stand financially speaking, let’s move on to how to change your inancial habits so that you can improve your financial fitness and create a more stable financial future.
One way to do that is to learn a new way to manage your spending. The envelope method of budgeting is a tried and true way to do just that.
Read the following excerpt from Money for Life – Budgeting Success and Financial Fitness in Just 12-Weeks and learn the Secrets of Envelope Budgeting and why it has always been so effective.
Congratulations on completing Day 2! In Day 3 we will introduce a budget calculator to help you start on your spending plan, review the spending envelopes that you will want to include in your spending plan, calculate your net income, and read an article on how to be successful at budgeting. See you tomorrow!!
