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Personal Finance

Just How Much

Are You Worth?

by Steven West

There isn’t any mystery to the art of money management.  It’s just a matter of common sense.  If you spend more money than you earn, then you go into debt.  If you spend less than you earn then you have money to save or invest.

Perhaps, if you started to think of your personal life as a business- and began to try to operate it as a business in which you wanted to be profitable, it might be easier for you to grasp.  Let’s try it, for the moment and see how it works out.  Let’s pretend that I am going to “buy” your personal life business from you.

The first thing that I’d want is a balance sheet, that’s a sheet that shows your assets (everything you own) and your liabilities (how much you owe). You add up the list of assets and write down the figure.  Then you add up the list of liabilities and write down that figure. 

If the assets figure is larger than the liabilities figure than you have a “net worth” – if the liabilities figure is larger than the assets figure then you have a “net indebtedness”.  It’s that simple.  If this seems unsophisticated, ask yourself about the last time you actually compiled your personal net worth.

Here’s how you do it.  Your first item is actual cash.  You want to find out exactly how much cash you have right now.  First, empty your pockets.  Round up every penny from wallets, purses,  cookie jar …the works.  Next, add it all up and write down the figure.  Now get your checkbooks and bank passbooks.  Add up the balances.  Any life insurance?  Put down the cash value if you cashed them in tomorrow.  Any stocks and bonds?  How much would you get if you cashed them in tomorrow?

 Write that figure down.  How many cars do you have?  How much would you get if you sold them tomorrow?  Use the trade-in value as an estimate.  How about your house?  How much could you get for it?  Your furnishings?  Any jewelry?  Figure that you’d get about half its worth if you sold it tomorrow.  Do you own a camper, boat, or sports equipment? Add everything up.    Now you have to start adding up your liabilities.

  1. Current debt?
  2. How much is the balance of the mortgage?
  3. Any car loans? (Total owed balance)
  4. Personal loans? (Total owed balance)
  5. Installment payments? (Owed balance)

Add up the figures.  The difference is either your net worth (desirable) or your net indebtedness (undesirable).

Now we’re going to consider your “cash flow” (which is the money you receive each week) against your expenses.  We’ll do this first on a yearly basis.  Just put down the amount on your weekly paycheck and multiply it by 52.  This is your total income for your business” (unless you have income from other sources – add them to it).

Let’s suppose that your income for the year is $12,000.  That means you cannot spend more than $1,000 per month without going into debt.

Now let’s add up all your expenses for the year.  That means everything.  Mortgage (or rent), real estate taxes, school taxes, heat, gas, electric, telephone, insurance payments, tuition costs, pension or union dues, food, clothing, car maintenance or repair, recreation, gifts, magazine subscriptions, everything.  Don’t forget payment on loans, installments, etc.

Add it all up, divide it by 12 and if the amount per month is greater than $1,000, you’re in trouble.

The answer is not borrowing but cutting costs.  Now, there are some kinds of expenses that are fixed and can’t be cut…mortgage payments, real estate and school taxes, installment payments, loan payments, and so forth.

On the other hand, there are many expenses that can be cut down or eliminated for a period of time.  If your balance sheet shows that you are going into debt each month, then you have no choice but to set up a real ‘austerity’ program and cut some of your costs.

It needn’t be forever for a certain period of time. Say six months.  During that period you will be ruthless in cutting out the non-essentials.  That means anything that is not absolutely necessary.



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