Dear Carrie: In the last year, my husband and I bought a new house, had our first child and he switched jobs. All this change has me in panic mode, and I don't know how to get a handle on our finances. Where should I begin? --A Reader
Dear Reader: It's not surprising that you feel a bit panicked by all the changes in your life. Even positive changes such as a new house and a new baby are known to cause anxiety. So my first bit of advice is to take a deep breath and realize that things aren't out of control, they're just on a new course. But when it comes to financial management, new doesn't necessarily mean different. In fact, it may mean getting back to basics. And that's just where I'd begin to get a handle on your finances.
START WITH YOUR PERSONAL NET WORTH
The first thing I suggest is to create a personal net worth statement. This is basically a snap shot of what you own (your assets) and what you owe (your liabilities). It will help you understand your current financial situation and provide a reference point for measuring your progress.
Start by adding up your assets. Include checking, savings and money market accounts, CDs, savings bonds and the cash value of any life insurance policies. Add in investment accounts, both taxable brokerage accounts and retirement accounts. If you have ownership in a business, add that in as well. Then estimate your home equity and the value of personal property such as cars, home furnishings, art and jewelry.
Now look at your liabilities. This includes short-term obligations such as credit card balances and other outstanding bills, as well as long-term debt such as your mortgage or home equity loan, car loans and student loans.
To get your net worth, simply subtract your total liabilities from your total assets. If your net worth is in the plus, great. If it's in the minus, you've got some work to do.
REVIEW YOUR MONTHLY CASH FLOW
Now that you have the big picture, get into the specifics. Are you on top of monthly expenses? A good exercise is to write down your essential expenses such as your mortgage, food, transportation and loan payments. (I also like to include savings in this list.) Be sure to factor in big-ticket items that come periodically, such as insurance premiums and real estate taxes. Then write down non-essentials -- restaurants, entertainment, even clothes. Does your income easily cover all this? If it doesn't, it's time to prioritize.
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