your perception of money, you can start your journey to financial freedom by knowing where you are now.
What is your current financial situation?
How much money do you really have?
Is your current lifestyle complementing your current income?
Why do you live from paycheck to paycheck?
Do you benefit from your investments?
These are some of the questions that will be answered as you go through with assessing your current financial situation.
Why It MattersThe primary aim of mapping out your current financial situation is to have a basis for setting your goals.
Knowing the actual figures of what you own (these are your assets) and what you owe (these are your liabilities), is a tangible reality check that can hopefully stir you towards a better money management mindset.
One way to gauge your current financial health is by calculating your net worth.
The formula is simple: Net worth=Total assets-Total LiabilitiesAssets Any source of income, money generating investment, or item with economic value is considered an asset.
This term encompasses the cash you have in your wallet to any paper asset you own (ex. securities) to any item you own that can be sold for a price (ex. car, jewelry, etc.). Items listed as assets bring money into your cash flow. For an employee, the bulk of his asset is his income from his job.
Entrepreneurs count on their net profit for their monthly income.
How about you?
At this point what are your sources of income?
What types of investments do you own?
Liabilities To put it simply, liabilities refer to anything that draws money away from you.
Itis essentially the cost of living a comfortable life (defined in your own terms)and it varies from person to person, based on social and civil status. Electricity bills, water usage bills, and house mortgages are classified under liabilities.
Take time to list down all your current bills and debts (if there are any) and calculate your total.
This value provides a measure of how much you’ll need to support your current lifestyle.
Mapping your financial status gives you a head-up as where you are now and how near you are from reaching your goals.
A positive net-worth is what should be aimed for to eventually achieve financial freedom.
A negative net-worth is strongly indicative of living beyond your means.
By reviewing the items listed under liabilities, you can identify improvement areas and make some lifestyle changes unless you are able to pay off your debts and achieve a positive net-worth.