I Have My Financial Inventory, Now What?

Congratulations! You’ve built a complete inventory of your finances. Next, let’s walk through each section to identify how to grow your wealth. In this post, we’ll focus on creating a strong financial foundation.

Let's start with the assets you have. Address the questions below to determine if you should take immediate actions to strengthen your assets.

  • Emergency Fund: Do you enough cash to cover at least 3 months of bare-bones expenses (housing, food, utilities)?  If not, let’s add this to the top of your priority list.
  • Consolidation: Have you found assets that aren’t creating value? You might want to consolidate these. For example, did you find a small savings account or old savings bond that has come to maturity? If you consolidate into fewer banks and fewer accounts, manage your finances is even easier.

What about your liabilities? Debt can be overwhelming. Review the questions below and rank the debt you want to pay off. Determine what debt is first priority, and after that is paid off, know what comes next.

  • High-Interest Debt: What is your highest interest-rate debt? If it is student loan or credit-card debt, consider it as a potential #1 payoff priority. We’ll work together to make (or find) money to pay this debt off faster.
  • Stress-Creating Debt: Not all debt is created equal. Is there a debt that really stresses you out? This is often personal debt like a loan from a family member, or student loan debt that can be both large and impossible to discharge in bankruptcy. Identify your stress-creating debt and consider that as a payoff priority.
  • Tiny Debt: Do you have a debt that is much smaller than the others? Consider paying the tiny debt off as fast as possible, and then re-directing the payment amount towards your next highest priority debt.

How are you doing on insurance? Many of us are intimidated by insurance policies. However, the right insurance can play a critical role in reducing our risk and guarding our wealth. Explore the questions below to decide if you need to change your insurance coverage. (We'll talk even more about insurance in Step 5.)

  • Health Insurance: Do you have health insurance? If not, selecting and funding a plan should be at the top of your to-do list.
  • Confusing Insurance: Do you have a policy that you don’t fully understand? While there are many quality insurance products on the market, there are also expensive policies that provide rich commissions to the salespeople that recommend them. If you don’t understand it, call the policy provider and educate yourself to understand if the policy really works for you.
  • Life Insurance: Does your lifestyle depend on income from someone else? For example, are you partnered and you split the mortgage and bills with your significant other? Or, do you not work outside the home and depend on the income from someone else? If the answer is yes, consider a term life insurance policy to protect against future loss at a modest cost.

After completing your inventory, and reviewing the questions above - let me know what you’re tackling first. Create a very specific (prioritized) to-do list - I use Wunderlist - and give yourself deadlines. Each change you make strengthens your financial foundation. You’ve got this!

Inventory Your Finances: Step 1 of 5 Fabulous Steps to Financial Freedom

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

  • Real estate

  • 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