Tips for Financial Success - Part I

This article is the first in the series of ten to help you assess your financial situation, decrease your spending, and increase your savings.

As you may have noticed, the economic events of the past couple of years, from job loss to housing market crash, have awakened an awareness of financial instability in most of the population worldwide. The job loss prediction made by the UN News Center in January 2008 became a reality which also carried over in 2009.

The economic outlook for 2010, as outlined by Business Wire, is not much better; among other things, they caution the public to not expect a quick and easy recovery. The possibility of an economic recovery with subsequent downturn is still very much existent.

Does this mean you should fold your arms, declare that all is lost, and wait for personal economic failure to strike? No. On the contrary, there are several things you can do to change your economic situation. Let's start with step one.

1. Where Do I Stand Financially?

In order to evaluate your personal financial situation and create a plan for your financial security, you need to take a step back and assess your net worth. In few words, you need to find out how much money you have, after all your possessions and financial obligations have been taken into account.

These possessions are your assets. They are anything tangible you have: house, furniture, appliances and gadgets, clothing, car, books, movies. They are the spare coins you place in a jar, savings, money markets, stocks and bonds, and retirement funds. In short, anything you can sell, or liquidate, is an asset.

Your financial obligations are your liabilities. They consist of your expenses: mortgage or rent, utilities, insurance premiums, car loans, student loans, and any other types of payment you make. In short, a liability is any money you owe, either for a service, such as utilities, or goods, such as a car.

To assess your net worth, which is the difference between what you have and what you owe, you need to prepare a list of all your assets (possessions) and liabilities (financial obligations). Generally speaking, only major assets are part of the list, such as homes, cars, and jewelry; however, for this purpose, you need to think of anything you have that could provide you with a financial return, should you find yourself in need to sell it.

Prepare a list of all your possessions and their worth, starting with the most valuable one. You may search the Internet for ready made templates to fill out, or you can prepare your own, either on computer or using the old fashioned pen and paper method. If you choose the computer, an Excel spreadsheet will work best, as it will allow you to do calculations with ease.

Begin by listing the items vertically. Your home may be the first on the list, or perhaps your car might be. If you don't own either, your furniture might be the number one. Whatever your most expensive material possession is, list it first. Continue with all the other items you have accumulated through the years. For example, you may have purchased, long time ago, a book collection of classic authors; list it. Continue with your inventory until all items that could give you a financial return have been listed.

Next, record their value. To assess their worth, you may need to do some research. What would that item cost if purchased used today? Naturally, you need to consider its condition. You also need to be conservative in assigning its value. Don't appraise something over its actual worth. Some items may gain value with time, such as a home or an autographed first edition of a book from someone famous. Other items lose value with time and use, such as a vehicle or a computer.

When you are finished listing your assets, it is time to list your liabilities. Begin with the most expensive item you have. It may be your mortgage or rent, it may be the car payment, or it may be another type of loan. Continue your list until all of your debts have been recorded.

Remember to list any insurance you may have: home, health, life, and auto. List all of your utilities and other home bills. Go through your checkbook and bank account to make sure you have recorded all. Did you remember to include the exterminator? What about the yard service?

Last step is to calculate your net worth. Add all your assets; add all your liabilities; subtract the two figures. If your assets are more than your liabilities you have a positive net worth. But don't rest on your laurels quite yet. There is still room for creating an extra savings cushion.

If your liabilities are more than your assets, you have a negative net worth. But you need not despair, should you owe more than you have. The next article, Where Is My Money Going?, will help you analyze your expenditures, reduce your costs, and increase your net worth.

Stay tuned for more.