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Your life can suddenly turn into a rat race. However, you have already found the art of allocating your time among all the things that you have to manage on a day to day basis. You are able to manage your career, provide the needs of your family, attend to home repairs and deliver on a lot of other things which are expected of you. How about your finances? When was the last time you had evaluated and assessed your financial position?

It is important for you to learn the basics of financial management. You have to develop a keen understanding of the ways by which you can effectively handle your finances. This means that you must learn about net worth, cash flow, debt, credit scores, insurance and cash reserves.

Assess your Cash Flow

Using a spreadsheet or other financial management software, prepare a list of all sources of income and their respective amounts. Create another column where you will put the list of all your expenses. Include in this column your retirement contributions and automatic savings. Compare the two columns. The difference must always be on the positive range. If you are getting a negative amount, then this means that you are spending beyond your means. You have to get rid of the excess fat in your finances by reducing your expenses. You also have to look for ways by which you can increase the amount on the income column.

Assess Your Net Worth

Your net worth is a measure of your personal wealth. This gives you the “macro” view of financial health condition. There are 3 ways by which you can improve your net worth. You can increase your assets, reduce your debts and you can do both options simultaneously. Your net worth can be derived by subtracting your liabilities from your assets. You can use your net worth to determine whether you are meeting your financial goals or not.

Check Your Cash Reserves

The state of your liquidity is also a good measure of your financial health. Your cash reserve should be enough to cover your financial requirements under a worst case scenario. It is not enough that you have an existing credit line. A sufficient cash reserve is essential especially if your cash flow is limited or almost zilch.

For instance, you must have sufficient cash reserve in the event that you get separated from your present job. The amount must be enough to cover your expenses until you receive your employment insurance.

Check Your Credit Score

Develop the habit of regularly checking your credit score and credit report. You have to make sure that all the information that are reflected in your credit report are accurate and with basis. Make sure that errors are immediately rectified as this can seriously impact on your credit standing.

Check Your Insurance Portfolio

Your insurance is probably the most neglected item in your personal finance portfolio. You must be able to understand the importance of having the appropriate insurance policy that will protect your family from financial ruin in the event that something happens to you. It is important that your family can survive if your source of income is suddenly cut off as a result of disability or death.


Source by Laurel R. Lindsay

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