BOSTON (CBS) – To figure out what you’ve got, you will need to generate a net worth and then do a cash flow to figure how and where you are spending your money.
A net worth is a snap shot of where you are financially at a given moment in time. It is a list of your assets and your liabilities.
First list your assets and break them into two categories, Use Assets and Invested Assets. The use assets are what you use every day and the invested assets are the assets that will help you achieve your goals.
Next, list your liabilities. This is the money you owe; mortgage, credit cards, etc. You subtract your liabilities from the assets. Hopefully it’s a positive number. A negative number means too much debt and it’s probably credit cards or an upside down mortgage. House values are still down in many areas over 20%.
Now for your cash flow. You’ll want to figure out where your money goes each month. What comes in is usually easy; your salary, child support, commissions, social security, unemployment.
Now calculate what goes out and where it goes. Spend a month doing your cash flow. Don’t forget those annual bills and the ATM withdrawals. You subtract what goes out from what comes in.
And you want a positive number here. You want to have spent less than you earned for the month. That’s a positive cash flow.
If you are living paycheck-to-paycheck that’s not bad but you will need to do better if you want to have money left over to invest or save.
Do you have more month than money? You are spending more than you are earning and using your credit cards to supplement your income.
You have got to figure out a way to get a handle on your credit card debt and eliminate it. Carrying credit card debt month-to-month will not allow you to reach your goals.