Dec 2nd, 2007
Start where you are
The place to start with personal finance is where you are; the problem with that is most people don’t really know where they are. It’s very typical for those of us in America to go from paycheck to paycheck and say things like, “If there are checks, there must be money.” The unfortunate part about this is not that we joke; the unfortunate part is that we go around, many for an entire lifetime, not knowing where they stand.
So we start at the beginning.
Before we go anywhere else, we need to figure out where we are. If you go to unfamiliar shopping malls often, think of this as looking for the “You Are Here” point on the map.
Collect all of your current balances from your checking, savings, certificates of deposit, brokerage, 401(k) or equivalent, individual retirement account, and any other places you have money stored away, regardless of whether or not you can easily access the cash or not. Add all of these together and you get your current monetary assets. Add to this the value of things like your vehicle and house and you get your total assets.
After all of that (which in and of itself can be exhausting), it’s time to consider your debt. Add up all of those accounts you owe money on–your mortgage, your car loan, your credit cards, your store credit accounts, and anything else you have–and you have your total debt.
Subtract your total debt from your total assets for your total net worth.
Hope really hard it’s a positive number.
If you’re just out of college, you’re more likely to have negative net worth; after all, you haven’t earned very much yet and are likely to have gone into some debt (or, if you went through extensive schooling like medical school, substantial debt) while finishing your education. However, you’re much better off having negative net worth at this time in your life than you will be if you’re still at the total net worth ten years later, since you have more time to pay the debt off.
One way or another, whether your like the number or not, it’s critical to working on your personal finances to have some idea where you are when you start.
