Financial checkup

Financial Reality Check

by Jeffrey Kosola on July 14, 2010

Want to get out of debt but don’t where to start?  Do you really know how much debt you have, or do you THINK you know?

It’s pointless to try climbing your way out of debt if you don’t know how deep the hole is.  Everyone needs a reference point to start out with.  Without one you have no way of knowing if your efforts are paying off.  Getting out of debt is 5% common sense and 95% effort.

The Worksheet

Using the worksheet below (click on the big orange button), you will be able to capture the required information to calculate your net worth.  YES, this part requires a little effort (remember the 95% effort part?).

Net worth is a simple equation in which the result will make you happy, sad, or angry.

Total Assets – Total Liabilities = Net Worth

If you have never performed this calculation, I urge you to take the time.  This is the first step toward becoming debt free for life.

In the worksheet, you’ll gather all your financial data and figure out what your current debt load is.  Understanding your financial position in relation to ground level (debt freedom) gives you a target to aim at.  I was 101,000 feet($) below the surface when I started, within a year I’ve been able to climb over 40,000 feet($)towards the surface. Let me tell you, the air (and your stress level) gets much better the higher you climb.

Things you’ll need

  • Balance of all checking and savings accounts
  • Balance of all retirement accounts (IRAs, Roth IRA, 401K, 403b, etc…)
  • Balance of your 1st, 2nd, 3rd mortgages (if you have any)
  • Balance of any vehicles (car, boat, motorcycle, atv, RV, snowmobile, etc…)
  • Balance of all other debts (student loan, credit cards, personal loans, 401K loans, etc…)

Using the worksheet

The worksheet is extremely easy to fill out.  You’ll be recording the name of the lender, the reason you have the account, the amount owed, and any reference comments you may like to note.

Getting everything in one place is essential for streamlining your record keeping.  I spend less than 10 minutes per month updating my net worth.  That 10 minutes is the most important in keeping the debt destroying momentum going.  Being able to watch the change in your financial position is what helps you to keep working toward your goals.  Even if there are only slight improvements, you are still moving in the right direction.  You’ll being to understand how everyday financial choices effect the bottom line, and you’ll begin to make the changes you need to continue improving your financial position.

The PDF includes the blank worksheets needed to begin capturing your data.  I’ve also include a set of sheets that are filled in with my current data.  The data is current as of today.  I’ve been able to drastically improve my net worth over the past year by understanding my starting position.  If you want/or need to get out of debt, PLEASE take the time to figure out your starting position.  Do it for your family, they need you to get out of debt.

{ 29 comments… read them below or add one }

Que July 14, 2010 at 5:20 pm

I have always been good at watching my money. And that is ok. But you have to follow watching you money with taking action. And it wasn’t until I started watching my net worth that I really started getting serious about my finances. I wish I had gotten a handle on this when the money IN was WAY more than the money OUT.

Reply

Jeffrey Kosola July 15, 2010 at 4:08 am

Hey Que,

Watching your money is always a good thing :-) Monthly budgets and cash flow are great to use for everyday checkups, but looking at your net worth (the 50,000 foot view) is very powerful.

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Evan July 14, 2010 at 9:06 pm

I never bothered to calculate my net worth because it is so negative right now! I would absolutely be positive without the school loans. Cool worksheet

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Jeffrey Kosola July 15, 2010 at 4:10 am

Evan, I always thought my net worth wasn’t worth the calculation either (because I knew I had a ton of debt). Then I did it one day and almost had a cow. It helped me to understand exactly where I stood and I was worse off then I thought I was.

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Benjamin Bankruptcy July 14, 2010 at 9:11 pm

I understand that this is the what you need to do but it’s not really a reality check. How did you realize you where in a bad place what made you wake up?

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Jeffrey Kosola July 15, 2010 at 4:20 am

Benjamin,

I believe it is a reality check. Many people only know the amount of debt they have for each credit card, car loan, boat loan, store charge card, 1st mortgage, HELOC, student loan, etc. Taking each debt by itself can trick a person brain into thinking that its not really that bad. They are still making all the payment and living the lifestyle they want. But if they took the time to add it all up the “fuzzy math” that happens in our heads is replace by a single number that is usually much higher than we have calculated in their heads.

I realized my “bad place” when I didn’t have much money left after paying all my bills. I had lost some income from job position change and finally added everything up. Not just the payments each month but the complete debts. Using net worth force you to use ALL of your debts. Many people don’t factor in their 2nd mortgages, students loans, and other misc debts they don’t really consider debts. This can fool you if you are not careful.

Reply

Benjamin Bankruptcy July 15, 2010 at 11:43 pm

Hmmm maybe I’ll build a flash based new worth calculator, could be usefull. Any ideas on a name?

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Jackie July 15, 2010 at 1:05 am

It’s amazing what a difference just adding things up can make in how you see things.

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Jeffrey Kosola July 15, 2010 at 4:21 am

Jackie, very true. Adding it all up helps to remove the debt blinders that many people have worn for years. It did for me :-)

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Financial Samurai July 17, 2010 at 11:32 pm

Are you like me and enjoy checking your bank accounts a frequent basis? I think you are. Knowing what goes in and out is so fundamentally important, it can’t be emphasized enough!

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Jeffrey Kosola July 19, 2010 at 7:26 am

Hey Sam, I look at my info at least every other day. I use my ING account to cash flow my daily needs. I then back fill my main account from my sub accounts. Looking more frequently than most people allows me to watch everything like a hawk :-)

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Greg McFarlane July 18, 2010 at 3:53 pm

“…Balance of your 1st, 2nd, 3rd mortgages (if you have any)”

If you’re on your 3rd mortgage, I think the net worth-calculation ship has sailed.

Reply

Jeffrey Kosola July 19, 2010 at 7:28 am

Oh so true Greg,

I added the 3rd mortgage to see if anyone picked up on it.

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Mrs. Accountability July 20, 2010 at 10:31 am

I have always, always watched my money carefully, but never calculated net worth! I have downloaded your PDF and will do it this weekend. Thanks for the nudge, Jeff!

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Jeffrey Kosola July 21, 2010 at 8:55 am

Any time Mrs. Accountability. Good luck with the net worth.

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carloan calculator July 21, 2010 at 8:53 pm

That was a very truthful point. Maybe its just a matter of appreciation that would bring us to accept that debt is something really essential to deal with. Unless you are bounded by the realization of your financial obligations, then you can not really move and operate smoothly towards achieving success. It is an important factor that will either bring you up or destroy you. proper management of our dept will create a very diligent prospective on our personal capabilities.

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Quick quid August 10, 2010 at 9:08 am

Financial realty check can be one option to lower the debt but who wants to control the debt, people know the outcome and still take risks as they want to live on the cost of compromises. Financial realty check will be possible for only those who have big accounts and needs to maintain to keep check on their money flow.

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