The New Year is almost upon us. Maybe you’ve already starting thinking about your 2011 resolutions. Along with diet and exercise, 2011 is the time to begin your personal financial plan. Why? Because the world economy is still in a bad patch. In order to navigate smoothly through the economic potholes, you’ll need a strong foundation.
The first thing you need to do is to gather your documents. Here are some of the documents you are going to need:
• W-2s, 1099s, and any self-employment income or rental income
• Brokerage statements
• Bank statements
• Mortgage: balance on the principal and interest rate
• Credit Cards: balances and interest rates
• Car and personal loan balances and interest rates. (Also find out what the blue book value of your car)
• Tuition and education expenses
Determining Your Net Worth
To determine your net worth:
• Add up your assets. Assets include the equity in your home, the value of your car, value of your retirement and brokerage accounts, and other belongings.
• Then add up your liabilities. How much do you owe on your mortgage, your car, your credit cards, etc.
• Finally subtract your total liabilities from your total assets and you have your net worth.
Determine Your Cash Flow
Determining cash flow is easy. You probably have a good idea of what your cash flow situation is already. However, seeing it on paper can be an eye opening experience. To determine your cash flow, simple add your total monthly net income and subtract your total monthly expenses.
Making the Plan
Now that you have a picture of your financial situation. Look at your future. Will you be sending children to college? Do you have enough money for that big vacation you’ve always wanted? Will you be able to retire anytime soon? Make plans to brighten your future and smooth the financial road ahead.