Assessing Your Financial Situation


Proper saving and investment is a must if you want to buy a new home, or a car or a new education loan or just save for the rainy day. Here we will list down some very simple steps to initialize your dream savings and investment plan.

First and foremost be clear about your goals and then prioritize them – it could be anything, home, car, retirement benefits etc and in any order that you like. This is because once you write down what you want to achieve financially, you know how & when you will be able to reach there. So now you are very clear about what you want to invest for in future and when you want to get it. Time frame is very important; you cannot use your saving for all your dream buys in one go. The US SEC gives details about certain tools that can help you calculate this such as- Ball park estimate, worksheet by American Savings Education Council, college savings calculator by FINRA, benefits calculator by SSA etc.

But before going ahead with your plans to save and invest, it is always advisable to understand the position where you stand currently. To figure out your current finances, you need to write down what is yours and what is not yours. For this we have to take the accountancy route- create a new worth sheet. That is divide your paper into two columns – one for writing down all your assets (that you posses now) and all your liabilities (that you owe to others).  Examples of assets include your current cash balance, bank balance, value of any life insurance taken, any retirement plans taken and their cash benefits, any property that you have, any vehicle that you own etc.

Examples of liabilities may include your loan or mortgage amount, the dreaded credit card amount, any other types of loans etc. Add these two columns separately. If your assets are more, congratulations atleast your beginning is strong with a positive net worth. And if your liabilities are more, then do not worry; you just need to be working very hard from this minute to change the equation.

The above exercise is a very good plan for any individual serious about his future. You need to do this every year to know your current standing. Now the next step is to know at what rate money is coming to you and at what rate it is going out. Write down again in another sheet, in two different columns (next to our net worth page), your monthly income and your monthly expense to know your yearly cash flow. By your income we mean your salary or any other earning as well as that of any of your family member. Expenses can include the general house hold expenses and money spent for your savings & any investments.

Now again add up these two columns separately. If your income is more, then congratulations again, you can now start saving more for your future. But if your expenses are more, it is time to indulge in reducing some of your general spending habits. And talking about spending habits, the most important point you should start doing once you find yourself serious about savings & investment is controlling the use of credit cards. If you use many cards, start reducing your debt by paying the card which has the highest interest rate, followed by others.

The above points will help you in arranging your life in a good financial order.


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