Money
Management
Net Worth - Evaluating
Your Current Situation
Knowing where you stand today in
terms of your finances is the first step in developing any financial plan.
Net worth (your assets minus your liabilities) is a tool that is able to
give you a "snapshot" of your current financial situation. It will help
you determine your and what resources you can apply to meeting your
goals.
Net worth is the main measurement
of wealth. The most straightforward ways to increase your net worth are
to increase  your
assets (by investing current assets and accumulating more) or to reduce
your debts. The other number to look at in evaluating your current situation
is your net income (your gross income minus your expenses).
Cash Flow Management
Many people find they are spending
more than they bring in. It's difficult to increase your net worth (and
meet your financial goals) if you are constantly falling behind on the
income front. Hence, cash flow management is key to achieving personal financial security. Check and calculate your cash flow using our Cash Flow Calculator.
For example, are you spending more
on entertainment or other nonessential expenses than your income supports?
Or are you spending more than you have to for necessities such as housing,
an automobile, clothing, or other similar items? The answers will probably
point you to one or more possible solutions, such as cutting back on the
non-essentials or finding less expensive alternatives. Then, you can put
the money you save to work toward meeting your goals.
Most causes of overspending can be
addressed through use of a budget. Simply going through the process of
putting together an annual budget can help you prioritize expenses and
uncover areas where you may be able to free up more money to use for savings
and investments.
Many people find that they can develop
the discipline needed to put money aside on a regular basis by budgeting
for savings and investments the same way they do for other expenses. A
good way to make sure your budgeted amounts actually do go into savings
and investments is to set up an automatic saving / investing plan with
a bank or a mutual fund company.
Trimming Your Budget
Cutting your expenses will take some
effort. You may have to delay some purchases and find ways to spend less
on the things that you need to buy. By cutting costs, you should be able
to afford to contribute more to your savings and investments. Similarly,
if large debt payments are making it difficult to save, you need to look
at ways you can reduce this burden so you can move ahead toward your financial
goal.
Reduce Housing Costs
One good avenue to explore is the
possibility of refinancing your mortgage. The rule of thumb is to consider
refinancing your home when mortgage rates drop two percentage points or
more below your current rate. But people who plan to remain in their home
for a while can come out ahead with a rate reduction of as little as one
percentage point.
Buy Smart
How and when you shop can make a
discernible difference in your spending. Different items generally go on
sale at different times during the year.
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