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Do you know what your current financial status really is? By that I mean can you easily answer the questions:
- What is my net worth?
- What is my FICO score?
- What are all the assets I own and their value?
- What are all my liabilities and their current payoff amount?
- How much do I earn?
- How much do I spend?
- Am I adequately protected from an insurance and legal standpoint?
Can you rattle off the answers or at least go to one central record keeping place in your files (electronic or paper) and find the answers? If you are in a relationship are you clear on your financial status individually and as a couple?
If you can't answer the questions, find these questions creating more questions in your mind, or are simply overwhelmed by it all and would prefer to stick your head in the sand, now is the time to stop and take stock. If you don't know where you are today financially, how can you ever determine where you want to go tomorrow (and why) and how to get there?
Here's the good news - you can (and must) start right where you are. Let's walk through each of these questions, get clear on the importance of answering them, and create an action step so you can start moving forward starting today.
What is my net worth?
This is actually a question you will be able to answer after you answer all the subsequent questions. What your personal net worth represents is the total value of all your assets less the total value of all your liabilities. If you've got a positive net worth -- that is great! The higher it is, the better off you are in terms of financial independence. If you have a negative net worth, don't fret. Many people do and it is not an insurmountable obstacle. By the end of the Healthy Wallet series of posts, you will have a better idea and plan to get you out of the red and into the black.
What is my FICO score?
Your FICO score is what lending institutions use in order to determine your credit worthiness. I wrote about FICO in detail in the past, but here are the basics you need to know.
What makes up your FICO score? I items such as:
- punctuality of payment
- ratio of total revolving credit debt to total revolving credit available
- length of credit history
- types of credit currently used
- recent searches on your credit history
What does the score mean? Basically a FICO score can range from 300 to 850 and the higher your score, the better.
Find your current FICO Score:
You can now request your credit report once every 12 months for free from Annual Credit Report.com. This free report includes information from all three major credit reporting agencies (Equifax, Experian and TransUnion) but it does not include your FICO score. It is a nominal fee to obtain your FICO credit score as part of your report.
What are all the assets I own and their value?
For those not familiar with the term assets - what it means is anything you own that has value. Things that fall into this category include:
- Bank Accounts (savings, CDs, money markets, etc.)
- Investment Accounts (mutual funds, stocks, bonds, etc.)
- Tangible personal property (houses, cars, boats)
Now basically in this day and age of eBay almost anything can have value, but for the purposes of your financial snapshot you want to focus on big ticket items and use their current market value in your calculation. What that means is while your new car you bought in 2004 may have cost you $25,000 in today's dollars it might only fetch $10,000 so you use the $10,000 in your calculation.
Assets can also include your investment in a business that you own, especially if it is the type of business that can be sold. Factor this into your calculation as well, but remember in all things, be conservative (as in, better to underestimate something's value than overestimate it).
What are all my liabilities and their current payoff amount?
This is much like the assets exercise except this time you are looking at liabilities - those are things that you owe money on. This is traditionally all forms of debt - credit cards, loans, mortgages, home equity lines of credit, and similar. In this case you are tracking what your current payoff amount is. That
