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Turn the lights on

Updated: May 29, 2019

Life is hard. Managing your finances is no fun if you have no financial education, no business background and very little experience with paying bills and balancing a budget. Running our personal finances is very similar to running a small business and we need to approach it with that mindset. We all have assets, liabilities (loans), revenue (income), and expenses. So now what?

You want some clarity and understanding? The first step is to complete your personal financial statements. You still with me? Sounds scary and extremely boring, but it is actually very simple and quite eye opening, especially when you start to understand how to improve them.

When meeting with new clients I always referred to this simple task as “turning the lights on”. The vast majority of my younger clients came to me operating their financial lives “in the dark”. Meaning they had absolutely no idea where they stood with their money. No clue how much money was coming in, where it was all going, how much they needed to survive each month, what investments they had, what assets they had, and so on and so on. Most importantly they never had a serious conversation about life goals and what it was going to take to achieve them.

So these were the first two goals I set for every client. First we would talk about life goals. Where do you see yourself in 5 years, 15 years? If you had a bizillion dollars how would you spend your time? If you could live anywhere in the world where would it be? That kind of fun stuff.

Once we built an initial list to get our juices going the next step was to create a Cash Flow Statement and a Net Worth Statement (which I provided an example in a previous post How to Manage Your Money ). Doing these two things alone was worth the price of admission. I can not tell you how many times clients would email me later that night to say they can not believe they have never taken the time to get all this stuff down on paper and they are changed forever. So go ahead and write it all out and then in the next post we will discuss how to make sense of what you see.

To becoming great with money....

Rich McCormack, CFP®

School of Personal Finance


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