Get Your Debts and Assets Down on Paper and Establish Your Net Worth
Where are you in term of your money management? Is your financial situation in direction of more debts or more cash? If you financial situation is at more debts than cash, then you are at risk of debt issue. In general if you have more debts, you are financially unhealthy. Avoiding your debt issue won’t get the debt away but making the situation worst. The only way to ensure your financial is at healthy level is to understand your debts, get to know your assets and take control of your cash flow.
In order to understand your total debts and assets in hand, the best method is list down all of them. You do not need to have a complicated system to do the job, what you need is a simple scale that can help you easily assess where you are in term of cash management. First, let’s look at how most people’s scale might have looked just before they realized they were living out their parent’s financial situation. Here is the Pre-Reality check for most people in general:
Figure 1: Pre-Reality Check for Most People
The grid in figure 1 gives a way for you to measure your cash management behavior on paper. If you have “Earn more than spend” crossed at “Not at All” or “Rarely, then you are in risk of facing debt problem as your money net is at flow out direction, which means that you are in more debts and less cash.
This is the most important step you should do before you even think of manage your money effectively to generate more cash and reduce your debts to a manageable level. If you have get started by writing down how you spend your money, change your money spending behavior by working toward savings & investment and keep tracking them each month, you should see improvement with more crosses moving toward right at “Frequently” and “Habitual”, which means that your money management work toward more cash with less debt. Your situation after 6 to 9 months later may look like this:
Figure 2: Financial Moving to Healthy Direction
By writing down your debts and assets on the paper, you get betting understand about your money and it helps to produce an increasing level of competence in the way you organize and manage your money. If you have not done any reality check on your money management, you should start it today if you want a debt free lifestyle.
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