Knowing the fundamentals of the financial world will take you a long way.
“Bottom line is, I didn’t return to Apple to make a fortune. I’ve been very lucky in my life and already have one. When I was 25, my net worth was $100 million or so. I decided then that I wasn’t going to let it ruin my life. There’s no way you could ever spend it all, and I don’t view wealth as something that validates my intelligence.” Steve Jobs
If you love spending money then you will most likely glaze over this article because it’s not going to support your habit or desire… which is to spend rather than the ‘boring’ opposite called saving.
Saving halts spend thrift people. It causes them to stop and think. It’s enabling a boring life, right? After all, If you can’t spend your hard earned money on objects, people, or other things then what do you do?
well, life isn’t over just because you have to hone down your spending sprees. It’s not over by a long shot.
You just have to rethink things.
M oney management
O wn your decisions
N et Worth review
E valuate your standings
Y our in control !
Money can’t buy you happiness. If you buy those expensive shoes, sure it’ll make you happy, but not for very long. Those expensive shoes cost a lot of money. You have to pay for them, eventually. You either were able to use your chequing or saving account and if lucky had the help of birthday money or a gift card. If you had none of those, then you likely used a credit card. Using a credit card is really a bad decision, unless you are diligent with paying them off each month. Most folks aren’t diligent. Spend thrift people buy on a whim and are likely not too concerned about the repercussions of their actions until the inevitable maxed credit card situation occurs… “Your card has been declined.”, is the worst response anyone wants to hear when shopping in public places. Spend thrift people are creative though. A maxed card may not stop that purchase. They will likely have more than one credit card in their wallet. Always a back-up plan A and plan B, and so forth. The good news is, that this cycle of spending can be controlled.
If the credit cards accumulate towards an amount that is more than you make a month, then you will likely not be financially able to pay it off AND paying a credit card off with another credit card is NOT a solution. Borrowing Peter to pay Paul still leaves you in Debt. You will not be able to avoid Interest charges either. Interest charges make it that much harder to pay your debts off. This cycle is very hard to control once you are in it.
This recommendation may sound harsh, but it must be said… if you can control the first cycle by stop spending money you don’t have or won’t have by the time the credit card is due then don’t purchase it, not at this time, that is. This is a small step to beating the second cycle and getting you financially independent and debt free.
If you are serious about getting your finances in order then start doing something about it.
Make more than minimum monthly payments to get those credit cards paid down.
Too many credit cards, too much debt, not enough money to pay them all? Contact them, each of them, ask them what they can do to minimize the interest rates. Maybe you can merge credit card debts into one card. If so, be sure to cancel and destroy those that you choose to inactivate. Keep temptation at bay by getting rid of those cards.
If you are stuck with your credit card debts, start putting chunks of money against your credit cards to get them paid off, as much as you can. Cancel all but 1 or 2 credit cards that you feel you may need as a back-up should anything unforeseen happen that a credit card can get you out of crunch… like an auto repair. Lower the limits on your credit cards will help you spend less. Don’t miss credit card due dates because these companies give very little lenience to tardy payments and rack up the service charges on you before you know it.
Budget your finances and stick to it if you want to beat the cycle of poor money management.
So, if you are serious about getting on track with your money then you should first start with getting to know your Personal Financial Net Worth. That is everything you own vs everything you owe. The difference between the two is your Personal Financial Net Worth. It’s a reality check. A valuable reality check.
Why should you know your Personal Financial Net Worth?
- It’s your Compass to keep you on track with your money
- It gets you to the root answer of your Financial Status, good or bad
- It’s an eye opener and can hopefully make you think hard about where you are in life with your money and where you want to be
Are you more in debt than you realized, are you actually doing better than you even thought, are you Financially Independent and can quit your job and support yourself going forward?
Creating and maintaining a Personal Financial Net Worth document on a yearly basis will help you understand the entire picture of your financial world and its progress as each year passes.
Why are you in debt so much? Where is your money going? How can you cut back expenses? What if you stopped getting take-out every day and make left overs instead? How much could you save in a week, month, or year by making small changes? Believe it or not, small changes make big differences.
How to determine your Financial Net Worth
Get paper and pen out, create a spreadsheet, or use a Database, or a even *Home Inventory MS Access Database” to record your Home Inventory. Once you have determined which tracking system you will use, begin to record your liquid assets. Liquid assets are items that turn in to cash rather quickly.
What are liquid assets?
- Cash on-hand (in wallet, stashed away in a secret spot, change dishes)
- Savings and Chequing Accounts
- Mutual Funds
- Money Market Funds
- Brokerage Account credit balance
- Life Insurance, cash value
Record your fixed assets, which are Items that are tangible, such as a house, car, furniture, artwork, electronics, clothes, jewelry, tools, refrigerator, stove, washer & dryer, crystal, silverware. Open your cupboards and drawers and record these items. Make it a project for family members to help you with this task. Record who owns the belongings too. Put a reasonable, conservative value on your goods.
Now, go through your bills. Records every financial debt (liabilities) you have.
|Money Market Funds|
|TOTAL LIQUID ASSETS||$ –||$||$ –||$ –|
|Item||Estimated Value||Estimated Value||Estimated Value||Estimated Value|
|Bullion (gold, silver…)|
|TOTAL FIXED ASSETS||$ –||$ –||$ –||$ –|
|TOTAL ASSETS||$ –||$ –||$ –||$ –|
|Money owed to Others|
|TOTAL LIABILITIES||$ –||$ –||$ –||$ –|
|NET WORTH||$ –||$ –||$ –||$ –|
After doing this exercise, have you realized something you didn’t know?
- Are you more in debt than you realized or are in a position to financially independent?
- Are you drowning in debt or possibly have very little savings or investments?
Parting with Belongings:
If you are more in debt and appear to be holding on to objects more than necessary, then you may want to print your Home Inventory list out and highlight items that you feel you can part with.
determine it’s value and see if it’s worth converting to cash.
Do you have more possessions and collections that are dusty, neglected, never looked at, never used, seldom if ever used? “just in case you may need it, are you a horder, are your closets, drawers, rooms bursting with clutter?
Why not purge. Why not sell your items and put the money to bills or towards investments. Turn them to cash, let the cash build interest.
Why not find out your status? If you are more in debt than you realize then take action to get yourself out of debt. You can’t take action if you don’t know where the problem is.
Where does your money go?
Add liquid and fixed assets and subtract liabilities totaling Net Worth
A Balance Sheet makes you aware of your Net Worth status.
If the results are shocking and you feel you need to change things so your direction in life is on a better path and possibly financially independent.
Some rules to follow:
- Pay yourself first… each pay cheque you receive, put a reasonable % of your paycheck into your savings account, RRSP, Stocks, Mutual Funds…. Just Invest it
- Pay down your debts diligently
- Try to not use your credit cards going forward
- Set a weekly expense budget – realistically and try to stick to it
- monitor your finances weekly
- Sell items you don’t want any more or don’t use and pay down your debts with the revenue or invest the cash and let your money grow
- Needs come first, wants come second…save-up for wants
determine your Financial Net Worth each year, and benchmark yourself, keep track of your progress, re-align your budget if your plans versus actual’s aren’t going on the path you planned. Sell items and turn them into cash for paying debts or investing. Stay true to yourself and keep your awareness of your Financial Status in the forefront of your mind each time a transaction occurs. Sticking to a plan and reaping the benefit of financial independence is a dream to most people. You are in control, so why not make that dream a reality. If others can do it, so can you!
Written by Deborah @ (DCS) DatabaseCreationSite.com where Creative People Make Awesome Databases for Personal Use, Businesses, and for Writers.
photo credit: Alan Light <a href=”http://www.flickr.com/photos/42274165@N00/36613965226″>”My Three Sons” TV show cast, 1969</a> via <a href=”http://photopin.com”>photopin</a> <a href=”https://creativecommons.org/licenses/by/2.0/”>(license)</a>