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If you're aiming for a financial revamp in 2019, the first step is to determine your financial position. As suggested by Kiplinger, creating a balance sheet is one of the simplest ways to do this, and it might even help uncover hidden weaknesses in your financial foundation.
Jaime Eckels, a Certified Financial Planner, recommends, "List all your assets and liabilities. Include details such as account numbers, interest rates, and current beneficiary designations. You can include as much or as little detail as you prefer."
The method you choose for creating your balance sheet is entirely up to you. Whether it's a spreadsheet, a simple Google document, or traditional pen and paper, there are countless examples available online when you search for 'personal finance balance sheet.'
What you're ultimately determining is your net worth (assets minus liabilities). While this figure is helpful, it’s also wise to organize all your financial data in one place so you fully understand your standing in terms of debts and assets. This will allow you to set realistic financial goals.
It also serves another practical, albeit grim, purpose. As Eckels points out, "Without a balance sheet, if something happens to you, tracking down your assets will turn into a treasure hunt."
For most people, reviewing your financial status once a year should be a sufficient measure of your financial health. However, Simple Dollar’s Trent Hamm goes a step further by suggesting:
Each month, I set aside time to calculate all numbers that reflect my financial condition, note any important details, and save the document for future reference. Whenever I want to review my financial progress, I simply pull up these records.
Here’s how to get started.
Gather Your Financial Documents
Assets include everything you own: Cash (such as money markets and CDs), retirement accounts, investments, the value of your home, car, and personal items like jewelry, electronics, furniture, and appliances.
Liabilities represent what you owe: Rent or mortgage, student loans, credit card balances, personal loans, and more.
If you’ve already compiled your financial details as suggested here, this should be a straightforward task. If not, you’ll need to gather your bank statements, investment logins, debt repayment schedules, and other relevant documents.
The aim, of course, is for your assets to grow consistently while your liabilities decrease. However, it’s perfectly fine if your net worth is negative at this stage. By documenting this number and strategizing ways to adjust both sides, you’re putting yourself on a path to financial stability.
If your 2019 goal is to reduce liabilities, here are some helpful resources we’ve compiled on that topic:
Strategies for paying off student loan debt while continuing to save and invest
How to use the stack method to pay down debt
How to develop a more effective debt repayment strategy
Dedicate 15 minutes daily to managing your personal finances
Common debt traps that keep you stuck in a cycle of living paycheck-to-paycheck
The first step to take once you’ve paid off a significant debt
If your goal for 2019 is to grow your assets, you're in luck: Increasing assets will be a major focus for Two Cents this year. In the meantime, here are some resources we've already gathered:
How to automate your finances and start saving money effortlessly
Building a simple, beginner-friendly 'set and forget' investment portfolio
A beginner’s guide to dividend investing
Top tips for maximizing your savings
How much money you should have saved by the time you turn 35
How to ask for a raise using this proven formula
Once you have a clear picture of your assets and liabilities, you can create a plan to reduce the latter while increasing the former. Set a calendar reminder to revisit your finances once a year, once a month like Hamm, or as often as you feel is necessary.
