Understanding Your Financial Report Card

As a child the school would inform your parents as to how well you do by sending home a report card.  As an adult, you too have a report card, it is called your personal financial statement.  I know I’ve touched on this before, even gave you a template for one.  I have discussed your income, and had you reduce your expenses.  Now on to your assets and liabilities.  Your assets are all items that have cash value AND put money into your pocket.  Liabilities are always taking money from you.  Separate them as below:

There seems to be a school of thought that you should work on your smaller debts first, I say, tackle the dragon first.  This goes two different ways.  If you want to reduce your credit card debt, find which one has the highest interest rate, pay the minimum on all other cards, then see if you can free up $100 - $200 per month and apply that to the highest interest card.  Continue this until your cards are paid off.  It is important that you DO NOT ADD ADDITIONAL CHARGES!

Now, most people have their mortgage as the highest, in this case my suggestion would be to commit at least $50 per month to your principle.  On a $100,000 mortgage at 4.65%, a $50 extra payment can knock off 5 YEARS.  Once all your other debts are satisfied, then add the $100 - $200 per month onto your mortgage.  Same as above, but $200 extra payment can take a 30 year mortgage down to almost 17 years….that’s 13 years OFF!

As my father used to tell me, “When you find yourself in a hole…STOP DIGGING!”  In this troubling time, it is imperative that we take control of our own personal economies.  If you do this, I promise you that no matter what the economic problems in the world, you will be fine.

Related posts:

1. Personal Finance Education
2. Reign in Your Personal Spending with Sensible Budgeting