Income Management

Net Worth - Evaluating Your Current Situation

Knowing where you stand today in terms of your finances is the first step in developing any financial plan. Net worth (your assets minus your liabilities) is a tool that is able to give you a "snapshot" of your current financial situation. It will help you determine your and what resources you can apply to meeting your goals.

Net worth is the main measurement of wealth. The most straightforward ways to increase your net worth are to increase your assets (by investing current assets and accumulating more) or to reduce your debts. The other number to look at in evaluating your current situation is your net income (your gross income minus your expenses).

Cash Flow Management

Many people find they are spending more than they bring in. It's difficult to increase your net worth (and meet your financial goals) if you are constantly falling behind on the income front. Hence, cash flow management is key to achieving personal financial security.

For example, are you spending more on entertainment or other nonessential expenses than your income supports? Or are you spending more than you have to for necessities such as housing, an automobile, clothing, or other similar items? The answers will probably point you to one or more possible solutions, such as cutting back on the non-essentials or finding less expensive alternatives. Then, you can put the money you save to work toward meeting your goals.

Most causes of overspending can be addressed through use of a budget. Simply going through the process of putting together an annual budget can help you prioritize expenses and uncover areas where you may be able to free up more money to use for savings and investments.

Many people find that they can develop the discipline needed to put money aside on a regular basis by budgeting for savings and investments the same way they do for other expenses. A good way to make sure your budgeted amounts actually do go into savings and investments is to set up an automatic saving / investing plan with a bank or a mutual fund company.

Trimming Your Budget

Cutting your expenses will take some effort. You may have to delay some purchases and find ways to spend less on the things that you need to buy. By cutting costs, you should be able to afford to contribute more to your savings and investments. Similarly, if large debt payments are making it difficult to save, you need to look at ways you can reduce this burden so you can move ahead toward your financial goal.

Reduce Housing Costs

One good avenue to explore is the possibility of refinancing your mortgage. The rule of thumb is to consider refinancing your home when mortgage rates drop two percentage points or more below your current rate. But people who plan to remain in their home for a while can come out ahead with a rate reduction of as little as one percentage point.

Buy Smart

How and when you shop can make a discernible difference in your spending. Different items generally go on sale at different times during the year.