Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 2, 1995 TAG: 9501030012
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
The start of a new year is a good time to assess your financial situation and to do three things: You must find out where you stand now; determine where you want to be next year; and create a budget to get you there.
Determine your net worth, or a new-year snapshot of your financial situation.
The American Financial Services Association said a balance sheet is merely a list of your assets and your liabilities.
Your assets are what you own or are purchasing over time, such as cash, bank accounts, market value of real estate, investments and household goods. This also covers cash value of pension plans and insurance policies.
Liabilities are what you owe, including amounts due on your mortgage, loans, credit-card debt, medical bills and other accounts that are not paid in full.
To determine your net worth, subtract the total of your liabilities from your total assets.
If your debts exceed your assets, you may be facing real problems soon. Even if they are about in balance, you haven't made much progress toward financial well-being.
If you find that your assets are substantially greater than your debts, you are probably in good shape for now, although it's difficult to determine if you're progressing or staying in the same place with regard to your financial health. To gauge your progress, you should save your balance sheet and create a new one the first of each year.
nAre you satisfied with where you are? Where do you want to be next year?
If you are not satisfied with your progress, this is an ideal time of year to put together your family financial plan by setting definite goals, the association said.
Your short-term financial goals will consist of what you want to accomplish in 1995. If your balance sheet was negative, you might want to try to reduce your debts by a specific amount. Others may want to build up a fund for a special purpose, such as home improvements, college-tuition payments or increased investments. You must put a specific figure here.
Your longer-term goals are usually more difficult to determine. They might be something as concrete as saving for a down payment on a new home in three years, or increasing your net worth by a certain amount in five years or planning for retirement in 15 years.
To achieve these goals within your time frame, you need to evaluate the cost of the goal and put down a dollar figure for each goal for each year. This must be added to the short-term goals.
Now it's time to set up your annual budget to achieve your goals and improve next year's balance sheet.
This step is easier if you use the budget sheet on this page to list your estimated monthly income and expenses over the year and compare these figures to actual amounts.
The budget worksheet is designed for as many people as possible, so put a line through categories that don't apply to your situation.
You might want to start on your budget by putting together all of last year's bills, receipts and checks.
Divide them into two categories.
One is regular payments, those that are paid on a regular and recurring basis, such as mortgage or rent, loan payments, taxes, utilities and telephone.
The other category is irregular payments, those that do not regularly occur, such as home repair and maintenance, medical and dental bills, auto repair and maintenance, and personal purchases.
These figures can be used as estimates for your expenses for 1995. Items on the worksheet with an asterisk are generally those that cannot be changed, such as monthly rent or mortgage.
Examine your estimated expenses, especially the irregular ones, to determine where your money went and if the expenses were justified. This step will allow you to figure out where you can cut back on your expenses to come up with the dollars you need in 1995 to meet the goals you've set for the year.
Your work doesn't stop this week.
Throughout the year, you will be tracking your budget, assessing your progress and adjusting your budget to meet your goals. The results are worth the effort. Once you begin to see improvements in your financial status, your New Year's resolution may turn into an annual habit.
by CNB