Below is part two of a four step series on how to Exploit Your Finances, Exploit Your Life!
Have you ever taken a hard look at your current finances?
Some of you may do this regularly, but I’m sure a lot of you are still tracking your finances in your head!
You know you have the mortgage to pay, you know you have to eat every day, you know you have the car loan and the insurance payments. But do you really know where you stand at this minute, this day, this month! You probably are not financially aware!
Just being aware of your finances can have a significant impact on you!
Let’s say that you have never looked at your personal balance sheet – Do you know that you have more debt than you do assets? What does this mean to you? Do you care?
Maybe you’ve never made a personal cash flow statement – Do you know that you spend more money than you bring in? What does this mean to you? Do you care?
Well…if you want to exploit your finances to exploit your life, then you DO care!
You should care a lot if you want to meet your life priorities!!
The most difficult part of this exercise is being okay with the outcome. At this point, it doesn’t matter if you’re in the red or spending more than you’re making. It’s OKAY! We just want to know what’s going on. Simply bringing self (financial) awareness!
(There are several useful – free – web-based tools for this process. We currently use Mint.com.)
The balance sheet is merely your net worth.
A basic list of all your assets and all your liabilities – with your net worth being the difference.
Assets may include your home value, car values, savings and checking accounts, and retirement accounts.
Liabilities may include your home loan, car loan, student loan, credit card balances, appliance loans, and loans from your retirement accounts.
It’s okay if your net worth is negative! We’re simply trying to capture the data and come to terms with it. We have to be aware and reflect, before we can conquer!
If you have a negative net worth, you are not alone! My wife and I had a negative net worth of over $50,000 when we finally recognized our financial issues. We had over $70,000 of debt!! We had a car loan, we each had student loans, we had credit card debt , and we had a personal loan from family. We even put our new washer and dryer on a credit card!
The debt was way more than the value of our simple list of assets (a small IRA and our car). But we knew our priorities were worth the realization – we came, we saw, we paid it off!
Cash Flow Statement
The cash flow statement is a reflection of how much money you spend compared to what you earn.
A cash flow statement is similar to a budget, but it’s not the same! This is a snapshot of where you stand on any given month, we’re strictly tracking your spending. A budget is setting spending goals and is where you want to be in the near future!!
List your income from your job (or possibly multiple jobs) and list all of your expenses.
Food, rent or mortgage, utilities, clothes, drinks, gifts, entertainment…the list of expenses is unending!
Again, we’re not focusing on whether you’re spending more than you’re making. It’s OKAY! We’re focused on becoming aware of our money.
I’ve been in the red. I’ve spent more than I made. I was living the American life – playing credit card games. I became aware!
We’ll work on ‘fixes’ in the next step.
Do you have your cash flow statement? How does it look? As good as you expected?
If you’re doing well financially, then you’ve probably cruised right through this step. You’re feeling good and ready to start exploiting your life!
If you’ve never taken a good, hard look at your finances before, then you’re nauseous right now! You’re in shock!
Maybe you knew it was bad, but not this bad!
Welcome to awareness! Doesn’t it feel great?!
I know. My wife and I came to the same realization once we started this process. Using Mint.com, we uploaded all of our accounts and began tracking our monthly expenses. Then…we went completely numb inside – that tingle, out-of-body experience when you know something is wrong.
We couldn’t believe that two grown, responsible adults, with great jobs, could be having so many financial problems. We weren’t doing anything different from everyone else! Why did our net worth look like this?!
Answer: Everyone we knew had the same financial problems, but when everyone is doing the same thing, it’s not called a “problem”, it’s called “normal”. Normal!
After the initial awareness paralysis wore off, we slowly built up our resolve – this was never, EVER going to happen again. We reviewed our priorities – that’s how we wanted to live! So we reversed course, and went down our new path!
If you get discouraged in any way during this process, revisit Step One, Priorities. Continue to review your priorities until they’re meaningful enough to outweigh any discouragement!
Are you aware of your current financial state?
Get ready to Exploit Your Finances, Exploit Your Life!
Join us in the Personal Finance Revolution!
Have you reviewed your current finances? What is the toughest part of becoming financially aware?