Easy New Year’s Resolution - Take Inventory of Your Personal Finances
Taking inventory of anything sounds boring and tedious…and something that you can put off for another day. However, when it comes to your personal finances, seeing what you own and what you owe, and putting it down on one or two pieces of paper, makes sense.
One of the first steps a professional financial planner takes is categorizing all the client’s financial accounts. You can do this as well, by using an Excel spreadsheet, a notebook, a legal pad or click on the following link for an easy to use worksheet:
https://egeiser.rwbaird.com/financial-asset-inventory-worksheet
This worksheet breaks down the personal finance categories you should address. Let’s take a look at each one:
Category # 1: Checking and Savings Accounts
These are your bank accounts. Even though these accounts don’t earn much interest, they are your most liquid or readily available sources of money. Beyond just paying bills and daily expenses, they are savings that can be used for emergencies. For more insights on emergency funds, please click on the following link:
Category # 2: Employer-Sponsored Retirement Accounts
More than likely, these are your main saving retirement accounts and therefore, very important. Be sure to regularly monitor these accounts and know who to contact with questions.
Access this link for help understanding your statements:
https://www.dhirubhai.net/posts/erik-geiser-79554470_activity-6619996460048101376-6Qvu
Important: If you have any orphaned retirement accounts, (i.e., any old accounts still with past employers), consider consolidating these accounts.
Category # 3: IRAs
If you have any retirement accounts outside of your plan at work, list these here. These include Traditional and Roth IRAs. With this category, it’s particularly important to know the name and information of the advisor responsible for your accounts Make sure they are providing regular updates to you.
Category # 4: Investment Accounts – (Non-IRAs)
These are your non-IRA investment accounts. If you have accounts that include individual stocks, bonds, mutual funds or annuities, list them in this section. Like with your IRAs, it’s important to know the advisor that manages these accounts and their contact information.
Category # 5: Real Estate
Use your most recent property tax statement or use online sites like Zillow to get an approximate market value of your home. You can then use this value to determine the amount of equity you have in your property.
Category # 6: Mortgages and Home Related Debts
These are typically low interest rate debts (e.g., less than 6%). Be sure to write down your current interest rate for your mortgages and home equity lines of credit. You may be able to get a better interest rate through re-financing.
To get the amount of equity available in your home, subtract the overall outstanding mortgage debt from the property’s value you listed in the previous category.
Category # 7: Credit Cards, Student Loans, Auto Loans and Other Debt
These are typically higher interest rate debts. This type of debt is important to track because it will have the largest effect on your total monthly expenses and cash flow. For more information about attacking high interest rate debts, please follow this link:
Category # 8: Life Insurance
List all your life insurance policies, including the policies you have through your workplace. Calculate an overall total for each insured person.
After calculating your overall amount, be sure that if something happens to you, your beneficiaries can replace your income and pay off your outstanding debts.
OK…your personal finances inventory is completed, now what?
Use it to target areas that need improvement, (e.g., not enough emergency savings, large high interest rate debt balances) and to track the progress of your retirement and investment accounts. Keep your inventory worksheet with other important paper and electronic documents.
I recommend updating this worksheet at least every six months or when you experience a significant life change (e.g., new job, birth of a child, etc.). If you need assistance with any components of your personal finances, please contact me.