How to assess your financial situation
We spend a fortune to get our routine health checkup done in the best of healthcare facilities. But ask yourself, when was the last time you assessed your current financial situation? Most of us conveniently ignore the need for evaluating our financial standing. But just the way you feel the need to get a health checkup done time and again, to assess the condition of your physical health. It is important to do the same with your finances. Especially, if you wish to grow your wealth in the near future, then assessing your current financial situation is the first step towards achieving your financial dreams.
Studies have repeatedly shown the correlation between people’s financial stability and improved personal relationships. It is, therefore, crucial that you get starting with assessing your current financial situation so that you can work towards achieving your futuristic financial goals.
Let’s take a look at the steps to evaluate your current financial situation.
Gather all your documents
If you are an organized person, then retrieving all your financial documents will not be a task. But if you are not, then you’re up for some searching and sorting. To get started, you will require all your bank statements, credit card bills, life insurance papers, loan payment slips, and investment related documents, if any. While you gather all the key financial documents, don’t miss out on the bills and slips that are indicative of your expenses in the current year.
Have you recently inherited any form of wealth? If yes, then look for those documents as well. Basically, you have to gather any and every piece of paper (or e-paper) that has information about your assets, expenses, and liabilities. The whole purpose of doing this is to calculate your total net worth. If you spend less than you make, then you make with every passing year, then you will successfully be able to increase your total net worth with every passing year.
List all your assets and liabilities
The next step requires you to categorize your assets and liabilities aptly. All the goods and assets you own will come under assets. This could be your jewelry, properties (including your home), expensive paintings, pension funds, cars, and your registered retirement savings plan. Once you list down all your assets, be prepared to give up on the good feeling as you start listing down your liabilities. In most cases, the liabilities list ends up being longer than the assets list. Things like your student loans, car loan, home loans, credit card bills, mortgages if any and taxes should be categorize under liabilities.
Total your assets and subtract your liabilities to calculate your total net worth with the help of your personal balance sheet. You can also opt for apps or free online software that help you calculate your net value with the help of a balance sheet.
While you calculate your net worth, spend some time reflecting on your savings, retirement planning, debt levels, credit report and score, your total savings and your investments. Create separate goals in each of these areas. For example, when you look at savings, ask yourself if you have saved enough to sustain a rainy day. Ideally, you should have at least three to six months of expenses saved up for emergencies. You should also look for the best interest rates in the market so that you can make the most of your savings account.
You should also check your credit report at least once a year. This will help you identify any possible cases of theft by showing your open accounts. You will also be able to figure out the truth about any incorrect information you may have received from your creditors.
Analysing your investment profile will help you understand how far or close you are from achieving your financial goals. Lastly, reviewing your debt levels could be an eye-opener for you. Check and see if your total debt has gone up in the past one year. If it has, then you need to devise strategies to even out your debt levels.
Moment of truth
Once you have calculated your total net worth, you will be in a better position to plan your finances for the future. And the individual analysis of all the financial components will help you identify your financial goals for the future.
You should ideally be assessing your current financial situation at least once a year. Therefore, you can do the required financial planning for the upcoming year.
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