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In Turbulent Times

09/30/2008 05:00PM ● Published by Super Admin

Many individuals find the notion of creating a budget about as appealing as performing seasonal chores such as raking leaves, mowing the lawn or shoveling snow. However, most people would agree the yard work is well worth the effort in achieving picture-perfect surroundings.

Two financial “snapshots” you can take at anytime to help showcase your financial landscaper are a balance sheet (or net worth statement) and a cash flow statement.  In addition to showing you where you stand today, they can help provide the basis for important financial comparisons in the future. Although there are a lot of computer software programs available that can help with budgeting needs, it can also be easy, and sometimes helpful, to construct your own worksheets.

Assessing Your Net Worth
To create a balance sheet, simply draw a line down the center of a blank piece of paper and label one column “Assets” and the other “Liabilities.” Assets are everything you own, and liabilities are everything you owe.

Enter all the relevant numbers and add up the two columns. We’ll examine the outcome later.

How Fluid Is Your Cash Flow?
Next, you will need to create a cash flow statement. Divide a piece of paper down the middle and label one column “Cash Inflow” and the other “Cash Outflow.” On the inflow side of the ledger, list monthly (or yearly) income from all sources such as wages, self-employment, rental activities, and investment income (interest and dividends).

On the outflow side, list all monthly (or yearly) expenditures, separating fixed expenses (mortgage payments, other periodic loan payments, and insurance premiums) and variable or discretionary expenses (utilities, food, clothing, entertainment, vacations, hobbies, and personal care). You might want to put taxes (federal, state, FICA) in a separate category. Again, plug in the relevant numbers and total the columns.

The Results
If your balance sheet shows your assets exceeding your liabilities, you have a healthy net worth, especially if your cash flow statement shows more inflow than outflow. This picture shows that you are solvent and spending within your means. The degree of financial health depends on the size of your surplus.

Your financial outlook may be less positive if your balance sheet shows your liabilities exceeding your assets and/or your cash flow statement shows more outflow than inflow. This picture indicates that your are spending beyond your means, so it may be wise to assess the areas in which you can decrease your liabilities.

Two goals worth pursuing are increasing your net worth each year and keeping your annual expenditures under control. If your financial picture is a little out of focus, taking action now to sharpen the view will make your financial future much more promising

Christopher B. Vaccaro, CLU, is the President and CEO of Capstone Financial Resources, Inc. in Cameron Park. He’s been assisting his clients achieve their financial goals and objectives for 19 years. To reach Chris, call 530-677-1724 or email cvaccaro@captonefinancial.net.

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