Stop Leaking Cash

Few of us know how to manage money. But financial planning is a necessity -- and easier than you think.

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Fundamental Financial Truths

Most of us just muddle along and learn how to manage our money as we go, befuddled by the plethora of options, decisions, and expertise that today's economic world encompasses Take heart. There really are a few fundamental financial truths that don't change over time. If you master them and keep informed of current trends, you can live well for less and save for a financially solvent future.

Calculate Your Net Worth
Let's start at the beginning: Before you do anything else, it's essential to figure out just how much you are worth. The easiest way to do it is to get a pad and pencil and make two lists -- one of your assets and one of your liabilities.

Your assets. Start by adding up the current value of everything that you own or have coming to you:

• Cash: Total of your checking and savings accounts, money-market funds, and CDs (certificates of deposit)
• House: The market value of your home.
• Other things of value: This includes jewelry, automobiles, home furnishings, art, vacation home, and such.
• Insurance: Figure out the cash value of all your policies.
• Investments: The current value of stocks and bonds, any rental properties, real estate partnerships, oil and gas partnerships, gold and silver, company stock options, personal collections (stamps, coins, antiques, and such), notes receivable, and the book value of a business.
• Retirement savings: IRAs, Keoghs, pension and profit-sharing plans, 401(k)s, any deferred compensation, and company savings plans (only count the money you could take if you left the company tomorrow).

Your Assets		Amount
Cash		$
House		$
Insurance		$
Investments		$
Retirement savings		$
Other things of value		$
TOTAL		$

Your liabilities. Now add up all your debts -- the amounts that you owe to others:

• Mortgage: Be sure to include home equity loans.
• Loans: Bank, car, and any other loans or notes.
• Credit card balances or any other outstanding debts.

Your Liabilities		Amount
Mortgage		$
Loans		$
Credit card balances		$
TOTAL		$

Your net worth. Once you have your two lists and have totaled them up, subtract your total liabilities from your total assets. The result is your net worth. Write that figure down. Memorize it. That's the number that will tell you when you can retire and how far along you are toward reaching your financial goals. Chances are your net worth is more than you think; however, if you find out that you are worth less than you think, let it serve as a wake-up call to revise your budget fast.

Assets		Liabilities		Net Worth
$		- $		= $

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