Let’s get started with the basics - our first step towards financial freedom.
What’s the goal of this step? Create and maintain a full view of your finances so you can more easily accomplish your financial goals.
Why is this important? Knowledge is power! An inventory helps you identify gaps, eliminate unnecessary accounts, and better manage your complete financial picture.
When and how do I do it? Start building your inventory immediately, and re-visit it at least annually to keep it current.
Here’s how you do it: Decide where you’re going to keep your inventory. Some of us prefer everything on the cloud, so consider a secure option like Google Docs or Dashlane. Others prefer good-old handwritten notebooks.
Catalog your assets - the accounts and items that have value. For each asset, log its current value. Common assets include:
Bank accounts: Checking and savings accounts
Investment assets: Retirement accounts like 401(k) and 403(b) plans, IRAs, pensions; investment accounts; bonds; college savings accounts
Other non-financial assets: Valuable items like automobiles and jewelry (I recommend focusing on only the most valuable of these items)
Next, focus on your liabilities. These are your debts and obligations - what you owe. For each debt, include the original loan amount, current balance, and the institution (or person) you owe; the interest rate; and applicable terms (years on the loan, for example). Include all credit cards, so you can easily compare interest rates.
Common liabilities include: student loans, credit cards, vehicle loans, mortgages, medical debt or personal loans.
Finally, catalog your insurance. These are the policies you (or your employer) have in place to manage against the unexpected. For each policy, record the provider, what the policy covers, the deductible, the insurance amount, and the premiums you pay.
Common policies include health insurance (dental or vision plans), life insurance, disability insurance, auto insurance.
This inventory will help you plan. It may take you time to collect all the information, and that’s okay. Next, we’re going to analyze the health of each category, to help you craft your financial freedom action plan. If you work with a financial planner, or are working on a will or trust, this type of inventory ensures you’re not missing any important information.
I’m curious if you have any surprises as you create your inventory. Are there any other categories you included? Let me know what you find, I’d love to hear from you!
xoxo, Ms. Financier