Hopefully, you have now "turned the lights on" and layed out your current financial situation like the pictures shown here. In this article I am going to help you make sense of what you have going on.
Here is the step by step thought process I go through when I evaluate a client's financial statement.
The first place my eyes go is directly to the bottom. Is your monthly income more than your monthly expenses? If so, then you should have some cash in the bank, not carry a ton of credit card debt and you should be saving some money every month. If your income is less than your expenses then you have to make some changes immediately or bankruptcy will be in your not too distant future.
I check the top left to see if you have an emergency stash of cash in the bank. If not, then this is priority number #1. Nothing else matters until you get a cushion of a few thousand bucks in the bank so you don't have to rely on a credit card if your car breaks down. I find that most people sleep much better at night if they have ten grand parked in a savings account.
Next, I go to the liabilities section. Is there credit card debt, car payments, personal loans or other unsecured debt? Paying off these liabilities will be next on the hit list right after the emergency fund is completed. If there is no cash and a lot of debt I will introduce clients to Dave Ramsey and the book Total Money Makeover. Go read it and get started on the debt snowball if you are in the above situation.
Next, I look at income. Is it enough to sustain your lifestyle? Is it all tied to your job? Do you have any passive income? What if you lost your job or got hurt and couldn’t work? Do you want to work forever?
Next I look at the assets. What have you accumulated in your life. Do any of your assets pay you an income? I believe rental properties are the best kind of asset. Do you have a 401k plan, IRA’s, gold coins, crypto currencies? Do you like to invest or would you feel better keeping your money in cash?
I hope that gives you a good starting point to see where you stand. I always encourage clients to sign up for mint.com or another account aggregation service to track where your money goes each month. Mint is free and easy to get started. Most of the time the amount you entered in the monthly expenses section above is short by hundreds of dollars. The only way to find out the truth is to use a site like mint. Take an hour out of your day to set it up and learn how to use it. Just go do it.