Tip 2: Know what you have!

Everybody knows that it is important that you have a financial plan and people often go to great lengths to come up with one. However they often forget an important detail when they are making that plan. They forget to determine where they are starting from. You need to know what you have before you start making your plan so you can determine if it is a good plan.

In order to make sure that your finances are in proper order you need to make sure that you have a plan. As part of that plan you need to know where you are starting from. This means that you have to have an accurate accounting of what your current financial state is. Most people think that they have a good idea of this but often they really don't know. There is a lot more to calculating your net worth than looking at what you have in your bank account. You need to look at all of your assets.

Your assets are anything that you own that has value, that means all of your possessions. You need to factor these into determining what you have. This can be tricky because you have to assign a dollar amount to these items. That is not always easy to do. In large part you are going to have to estimate here. That being said you do want to make an effort to get the numbers as close as possible to where they should be. This is especially true for the big ticket items. It is a good idea to have your house appraised from time to time for example. If for no other reason than so you know what to insure it for.

Of course the value of all your assets is just one part of the picture. You also need to subtract your debts from this total. You don't really own it if you owe money on it. This is an area that a lot of people fail to consider and it leads to a complete misreading of their financial situation. People think that if they have lots of assets they are in good shape. The problem is that if you also have lots of debt you are probably losing ground. Many people have more debt than they have assets, this is a major problem since the interest rates on debt are probably higher than the ones your savings earn the debt will grow faster.

Determining your net worth is something that you should be doing on a regular basis. You need to know this information when you are starting your financial planning but you also need to know at as you move forward. Regularly determining how much you have will allow you to see what kind of progress that you are making and will help to make sure that you are on the right track.