Here’s one step to take now to get a financial head start on the new year! Create a balance sheet that tallies everything you own and all that you owe. Paper and pencil work well, however I’ve found digital copies more valuable. The value of a balance sheet is to provide feedback on where you stand financially. Overtime you may reflect on multiple years and ideally see trends as your assets increase and debts shrink.
Total up everything you own such as your residence, retirement accounts, cash, and collectables. Now, total up all your debts such as mortgage/s, auto loans, other revolving debt. You may carry higher debt currently due to all the gifts you purchased this past holiday season. That’s OK, no judgement here, the purpose is to get an accurate picture of what you own and owe.
So, what do you see? The real value in this approach is stringing together multiple years so you may get a better understanding on what you’ve chosen to spend, invest, and save. This takes discipline and accountability which may be provided by a trusted partner. Attempting to mentally account on your own for all your spending and investing is difficult and often leads to errors. Our brains aren’t programmed to track our financial organization in an easy to recall process. The act of updating your balance sheet once a year creates a repeatable process that illustrates your financial priorities.
This is the first step in all our financial planning engagements and reoccurring work with clients each year.
The next step is assessing your cash flow and where your monies go each month. Creating a financial plumbing system that actively directs monies to your priorities increases your probability of getting closer to what you want. The key to cash flow which ultimately supports your balance sheet is embracing automation.
Continuing to invest regardless of the “current environment” allows you to create good habits that stick. Saving more overtime while still planning the vacation, kitchen remodel, and/or big-ticket purchase is possible with an understanding of your cash flow. In fact, it’s a lot easier to spend with less worry and guilt when you can take an assessment of your balance sheet.
Far too many individuals and families say no because they don’t “feel” like they can say yes. Wouldn’t it be nice to know if you could say “yes”? Of course, everything in moderation, but what’s the sense in accumulating or spending if you can’t enjoy and share it with others?
That’s the value proposition (one of many) when working with a financial planner. It’s goes beyond returns and focuses on stitching together various decisions, accounts, beliefs, and choices over long periods of time. This integration can be done on your own, though it may be enhanced when you have a partner to chat with on an ongoing basis.
Having accumulated a library of balance sheets and cashflow statements over the years, it becomes easier to serve others. Knowledge may be shared from years of financial and life data points by listening and staying in touch. This allows our clients to make better decisions, both today and tomorrow.
Thanks for reading and Happy New Year!