Taking Stock of Your Financial Health

Financial security is important for today and tomorrow.   Do you dream of financial freedom?  Or to live on the beach when you retire?  How close are you to your dream?  To find out – start with creating your own personal financial statement. 

A Personal Financial Statement calculates your personal net worth.  Knowing your net worth and what makes it up, will provide an insight as to how financially sound you are and how prepared you are for your future.  

Let’s break it down into parts

Net cash available to pay your bills and cover emergencies.

  • checking, savings, certificates of deposit, stock accounts, etc.
  • less credit card balances, lines of credit, student loan debt, taxes due, medical bills, etc.

Retirement assets intended to fund your golden years. 

  • Your retirement plan balances, investment accounts set aside for retirement
  • Less retirement account loans

Lifestyle assets that bring your joy.

  • The fair market value of your home, cabin, time-share, vehicles, cars, collections, etc.
    • Less the mortgages, vehicle loans and any other debt used to fund these items

Investments to supplement current life expenses, your future retirement or cover emergencies.  These items are challenging to determine their fair market value and will take time to convert into cash.

  • Real estate investments, land held for investment, Alternative investments and business ownership
  • Less debt secured against these assets

Breaking it down by the type of assets that you own your financial picture will provide a clearer idea of where your wealth is and your financial health.  Once you know where you stand, then you can take steps to move to where you want to be. 

Now that you have built your personal financial statement here are some questions to discuss…

  • Do you have enough cash available?  If something happened do you have access to cash?  Enough cash to help?  The piggy bank on the bookshelf won’t do it.  It is recommended that you maintain 3 to 12 months of living expenses.  
  • Are you prepared for your future?  Are you putting enough away so that you don’t have to live with your kids when you can no longer work?  
  • Is most of your financial worth invested in your lifestyle?  This is normally the poorest type of asset, since it loses its value very quickly.
  • Is debt taking over?  Credit card debt, school loans, and medical bills can accumulate quickly.   Do you have the discipline to pay cash for what you need today?
  • Are you investing in your future?  Financial experts recommend that you invest 10% of your annual income.  The idea is to create a “passive income stream” with these funds.   Passive income, such as interest income, dividends, rental income and royalties, provide an income stream that does not require you to work.  
  • Business value – This is a very unique, complicated asset that comes with high risk.  A personally owned business can be worth 5 times annually net earnings.  Due to the complexity the safest value is the checking account balance.  Many millionaires have been created from a small business. The key issue is to cash out. 

According to Suze Orman “a big part of financial freedom is having your heart and mind free from worry about the what ifs of life”.   Financial freedom is a dream worth having.  Start by determining where you are today.

By Mary Guldan-Lindstrom, CPA

If you need assistance or just want another opinion regarding your personal financial statement – we can help.   Our staff at FOCUS CPA can assist with gathering your personal financial and create a plan to improve your financial health.  Contact our office at 920-639-0861 or Mary@focus-cpa.com to set up a meeting to discuss your needs. 

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