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Assess Situation: Your Current Net Worth and Spending Habits

Very few people actually know their net worth. Proper cash management requires you to have a good understanding of your present financial situation. You can start by calculating your net worth or preparing a balance sheet. Your net worth is simply your assets minus your liabilities. See our Net Worth Worksheet.

Are Your Assets Greater Than Your Liabilities? If so, make sure you are maximizing your assets. And check that you have the right kind of debt: no credit card debt. Do your debts outweigh your assets? If so, focus on the debt reduction activities that are found later in this course.

What Are Your Spending Habits? The key to achieving your financial goals is to know your spending habits. You should know how much income you will need every month to pay your bills and to maintain your standard of living. How you spend your money affects your cash flow, which is essential when preparing your budget. You can prepare a cash flow statement by itemizing your expenses with our Budgeting Worksheet.

Now that you have assessed your current situation by completing the balance sheet and cash flow exercise, see if there are any changes that you want to make. Identify categories where you can spend less so that you can increase your savings and investments. Budgeting today will help you reach your goals tomorrow.

Complete the Financial Overview Quick Report for answers.

Look for ideas that may help you improve your spending habits as you go through the following sections.

Now let us look at ways to save!

Key Questions to Answer before Spending:

• Is this product or service essential?

• Could you get by with a less sophisticated, less expensive version of the product?

• Are you using more of the product or service than you really need?

• Are you buying at a competitive price?

• Are you spending too much money relative to your income level?

• How can you save more?

• Are you jeopardizing your future with your current spending habits?

How do you spend your money compared with the average American? The average American’s pays 32% of income on taxes: federal, state, sales, property and excise. The next highest area is on the home and household at almost 17%. Savings is currently at 4%.