Friday, Mar 15, 2024

If you’re like I used to be, you can find a million and one reasons you don’t have the “time” to sit down and look at your money situation. I found it so much easier to dig my head into the sand than risk facing the reality of my money habits. Can you relate? Some people say that even though they are confident that they’re sticking to what they believe are the essentials, they still shy away from taking a good look because whatever might be involved seems too complex. Many don’t feel they know enough about financial planning. 

Well, sweat no more! Just like X-rays are sometimes necessary to determine our physical health, our financial health also needs checkups. The great news is there are only three documents you need to set up to get yourself in order. If you’re grimacing, think – learning to use just three documents can mean setting yourself up for financial security and abundance. In a world where people spend hours scrolling to research how to draw the perfect eyebrow, isn’t this something we owe to ourselves and our families? 

  1. The Budget: Mapping Out Your Financial Anatomy

No, I promise I didn’t just say a bad word. Budgets are the hardest part of financial planning. When you start following one, you’ll be amazed at how much you spent on non-essential items. Think of your budget as the first X-ray—a map revealing the inner workings of your financial anatomy. Much like how X-rays show bones and tissues, your spending plan exposes where your money flows each month. By tracking your income and expenses, you gain clarity on your financial landscape and ensure you’re not bleeding money unnecessarily. You can find a fantastic worksheet for all these documents at the bottom of this blog : ) 

  1. The Cashflow Statement: Evaluating Your Financial Vital Signs

Next, like taking your blood pressure or checking your pulse, we want to evaluate your financial vital signs. The cash flow statement assesses your financial performance. It’s like checking your pulse to see if your finances are thriving or ailing. It works by analyzing your income against your expenses. Are you spending more than you make and going into debt? Or are you spending less than you earn? A cash flow statement gives you insights into your financial heartbeat so you can make informed decisions to keep your financial health in tip-top shape. By understanding your income relative to your expenses, you can gauge your financial health and make informed decisions to improve it.

Your budget lays out the framework or parameters for where your money should go. You can use the cash flow statement to ensure you have enough money in the bank to meet your monthly expenses when they are due and to check in on how well you are sticking to your budget. By reviewing this regularly, you can anticipate cash crunches, adjust payment dates if necessary, and build emergency reserves for when the unexpected happens. 

  1. The Net Worth Statement: Your Financial Checkup

A net worth statement is like a physical exam for your body, except obviously for your finances. It shows where you stand financially at that moment, with a comprehensive breakdown of your assets, liabilities, and overall net worth. It sounds complicated, but basically, you add up everything you have that is of value (assets), such as the equity in your home, savings, pension, other investments, and anything you could sell, like vehicles or valuables. Then you add up everything you owe (liabilities), such as a mortgage, car payments, credit card debt, and student loans. Then, you subtract what you owe from what you own. This gives you a number, which we call your net worth. I strongly recommend people redo their net worth statement each month so they can track their progress toward financial goals and adjust their strategies accordingly. If your net worth goes down each month, that’s an indicator that you are spending more than you earn and need to make changes to move forward. 

Fortunately, creating these three documents doesn’t require advanced financial expertise. You can find many user-friendly templates designed to be accessible regardless of your background. Here is one we like. You can download templates here. Click the tabs “Net Equity,” “Current Reality,” and “Spending Plan.”