Personal Financial Checkup

Jul 2015

 rick -2 


I hope you had a wonderful 4th of July weekend, and wasn’t it nice that the weather finally cooperated.  It’s hard to believe that we’re halfway through 2015.  It seems like yesterday we were celebrating the New Year.  Because this is the midway part of 2015, there are some personal financial planning items that we all need to take care of in order to keep our financial house in order.


At the beginning of every year I encourage people to do a personal family balance sheet and a cash flow statement.  These documents help you do a personal financial checkup on your situation.  That is why I believe it is a great time of year to redo your personal balance sheet and your cash flow statement.  From a standpoint of your personal family balance sheet, it allows you to see how you are doing.  Did you make progress over the first half of the year or not?  Of course, that doesn’t mean that if you didn’t make progress you should radically change your portfolio, but it is a good idea to see how you have done.


Remember, a personal balance sheet is nothing more than a listing of all your assets and liabilities.  This isn’t something that you have to have professionally done; rather, you can do it the old-fashion way with pencil and paper.  The bottom line, you need to do it and every six months is a good time frame.  Remember, when you look at your liabilities make sure you know what interest rate you are paying and whether it is tax deductible or not.


One of the most important numbers you can have is what it costs you to live a month.  That is exactly what a cash flow statement allows you to do.  A cash flow statement is nothing more than a listing of what came in and what went out.  Knowing what it costs you to live a month is essential to determining such things as whether you can afford to retire and stay retired or whether you can afford to take that trip or buy that house.  It is essential that you know what it costs you to live a month and no financial advisor can do that for you.  You have to calculate it yourself.  The reason I recommend that you do it at least every six months is so that you stay in touch with your expenses.  In most situations, we cannot control our income but we can control our expenses.  By doing a cash flow statement it lets you identify your expenses and at the same time allows you to look for ways to be more efficient.


It would be nice if personal financial planning was easy and something that you didn’t have to worry about.  Unfortunately, it is not.  Personal financial planning is something that you do throughout the year and something that you cannot afford to put on automatic pilot.  Just think of the problems that can develop if you think that it only costs you $4,000 a month to live but in reality, it costs you $6,000 a month to live.  You may not realize that you have a problem until it’s too late.  By staying informed of your situation, it allows you to have options and that is exactly what you want.


I cannot stress enough the importance of doing a personal balance sheet and a cash flow statement.  These documents will keep you informed about your individual situation and help you make better decisions with your money.


Good luck!