Oct. 12, 2006 - Evaluate Your Finances

My friend JLP at AllFinancialMatters has developed a great crash course to help you evaluate your financial situation.  I highly encourage you to take a few minutes to read his posts and then apply this material to your situation.  You don't need a Ph.D. in economics to do it.  JLP spells it all out clearly and it won't take much time for you to apply what you learn.  Go ahead and check it out by following each link to learn more.

• First, you will learn to create a net worth statement.  Net worth is simply what's leftover after adding up all your assets and subtracting all your debts.  It's important to know your net worth because that's how you measure you're financial progress from year to year.  A net worth statement provides a concise format for listing your assets and debts so you can analyze your financial situation.

• Second, you will create a cash flow statement.  This is a great tool for identifying how your income is spent.  Money comes in, money goes out.  You need to know where it comes from and where it goes so you can make wise financial choices in the future.

• Finally, you will learn to calculate various ratios using the data on your net worth and cash flow statements.  For example, have you ever wondered what your debt-to-income ratio is?  You should know because lenders use this measure to determine whether or not to lend you money.  JLP covers serveral other ratios to help you gain even more insights into your financial situation.

You don't have to be a financial genius to get ahead in life.  However, few people get ahead without understanding their financial situation.  JLP has provided an excellent resource to get you started on your financial self-education.