When it comes to health, we all go for a medical checkup to see if were physically fit. The medical report tells us everything about our health. But, when it comes to wealth,
it is as important that we do a regular checkup for our financial health. We need to
know where we are financially before we decide what we want to achieve financially.
But, how do we determine our level of financial fitness?
financial freedom Easy! We can use financial statements to get a snapshot of our financial fitness. These are income statements and balance sheets.
If this sounds boring and alien to you, well, to be honest, the process is somewhat tedious as you need to dig out things and get them organized in a proper way. But, we can tell you that once you’ve done this checkup, you will have a clear picture of where you stand financially and you can begin to take the necessary measures to achieve financial freedom!
And, what’s more, you’ll be in control of your money and know how to spend it more wisely!
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Let’s get started!
Determining your Financial Fitness
Your Income Statement
First you can prepare an income statement. An income statement is also called a profit and loss (P & L) statement. This statement consists of two sections: monthly income and expenses:
Your income is comprised of salary, any rent you receive from real estate, dividends from stocks and bonds, interest from savings accounts, and any royalties you may receive.
Your expenses consist of food, clothing, utilities, car loan payments,credit card payments, home mortgage payments, medical expenses,entertainment, insurance payments, money you may give to charity, taxes you pay, and money that goes towards education.
List down your income and expenses into each section accordingly. Then, calculate your total income and total expenses.
Once you’ve done this, it’s time to calculate your net income. Net income is the difference between your gross income and expenses:
Net income equals gross income minus expenses
If you come up with a negative net income, it tells you that you spend more money than you make. You’ll have to make a plan to either reduce your spending or increase your income.
Your Balance Sheet
The next step is to prepare a Balance Sheet. Like income statements, balance sheets
also have two sections: Assets and Liabilities.
Assets are your cash, real estate, car, bank accounts, stocks and bonds, mutual funds,
retirement accounts, and businesses.
Liabilities include mortgages, credit card loans, car loans, personal loans, education loans, and taxes.
Prepare your own personal balance sheet by listing down your assets and liabilities. Calculate your total assets and total liabilities.
OK! Almost there! The next step is to calculate your net worth. Net worth is the difference between your total assets and your total liabilities:
Do the math! And, give yourself a pat on the back for coming this farwith this exercise! By doing this simple exercise, you are one step ahead of many, many people.
So, are you financially fit?
budget The new year is an ideal time for recommitting ourselves to things that are important to us. And what could be more important than being financially fit? And, what could be better than starting fresh in a new year?
Now is the time to set your goals.
Here are our picks for the most important resolutions for financial fitness in the year 2005 and beyond:
* If you don’t have a written budget, do one now! If you do have a budget, resolve to stick to it!
* Resolve to take advantage of your employer’s retirement plan, if one is offered where you work.
* Resolve to start a savings plan! As little as 5% of your weekly take home pay really starts to add up when it is put into an interest-bearing account such as a money-market or tax-deferred IRA.
* Resolve to get your credit cards under control! Think twice before whipping out the plastic at the cash register.
* Resolve to educate yourself about financial matters such as budgeting, the proper use of credit, and saving for special occasions and retirement. Learn all you can about getting it together financially. A New Horizon’s team of Certified Credit Counselors can provide you with information that can help you in every area of your financial life.
* Resolve to set and stick to your financial goals. You wouldn’t start out on a long road trip without a road map, so why attempt the road to financial freedom without a plan?
* Resolve to get starting NOW on the road to financial freedom!
This year, resolve to become Financially Fit! Like physical fitness,the effort you put into fiscal fitness is worth the sacrifice when you experience the outcome of Financial Freedom!
