Financial Health
How can I determine my financial health?
Individuals can evaluate their own financial health by preparing a simple balance sheet. A balance sheet is a financial statement that businesses and accountants use to evaluate financial health. It itemizes assets, things that are of value that an individual has, and it itemizes debt, which is a reduction of the value of the assets that one has, and it then shows what net worth is. Hopefully you have a positive net worth, meaning your assets exceed your liabilities.
How do I create a "balance sheet"?
Individuals can make a simple balance sheet for themselves showing how much cash they have, how much money they have in certificates of deposit or savings accounts, money market funds, mutual funds, and what the value of their home is, what the value of their car is. If they have a business, try to estimate the value for the business. That's one side of the ledger on the balance sheet: the accumulation of the assets. On the other side would be the liabilities. What is your credit card debt? How much do you owe on your car? Do you have a home mortgage? Add all of these liabilities up and then you subtract the total of the liabilities from the total of your assets, and that will be your net worth.
What is a "financial goal"?
I believe individuals should have short term, intermediate term, and long term financial goals. Some examples of these goals might be the following. A short term goal may be "I want to buy an iPod and I don't want to put it on credit, so I have to save a certain amount of money to do it, and once I have that amount of money I'm going to be able to buy it"; that would be a short term financial goal. An intermediate term financial goal might be that in one, two, three, or four years you might want to buy a new car or buy a condominium and you need a certain amount of money as a down payment to do it, so you establish this financial goal of putting a certain amount of money away each pay period so that at the end of the predetermined period of time you will have saved sufficiently to achieve the goal of having the down payment. Longer term financial goals, and probably the utmost long term financial goal, would be saving for retirement, which so many people neglect to do.
How can I determine my financial goals?
I think it's very important for individuals to take stock of themselves and determine what it is that they want to do, what financial goals they are aiming for. There's no right or wrong in terms of establishing financial goals. Financial goals are very personal. One has to take the time to determine what it is that is going to give them fulfilment, or, make them happy, or, help them to avoid a problem that might occur if they don't have these financial goals. How is that financial tool, that currency, going to help you to get satisfaction, or to give satisfaction to somebody else?
