Managing your personal finances responsibly means giving yourself an annual financial self-check, the first step in shaping your annual financial plan. The best way to do this is by taking an inventory of your assets, which will allow you to see at a glance how healthy your bottom line lis. From there you can formulate a list of actionable steps to add to your savings and increase your wealth. (For more, see Here’s How to Build Wealth Like a Multimillionaire.)

There are several important elements you’ll need to review when taking an inventory of your personal finances. To get started, it’s helpful to organize some key documents, such as bank and investment statements, credit card statements and copies of your credit reports. Once you’ve done that you can move on to shaping your inventory. 

Managing Personal Finances: Start with Your Assets

The first item to include on your financial inventory is a list of your assets. This includes such things as:

  • Cash that’s in your checking account
  • Your emergency fund savings
  • Retirement accounts, such as a 401(k) or IRA
  • Investments held in a taxable account
  • Real property, including homes, land or vehicles
  • Insurance policies that have cash value
  • Artwork, jewelry or collectibles

Determine what each of them is worth and add up their combined value. For some items, such as artwork, it may be necessary to get a professional appraisal to get an idea of their true market value.

Move on to Your Liabilities

Once you’ve calculated how much you have in assets, it’s time to turn your attention to your liabilities. A liability is anything that you have an obligation to repay, such as:

  • Credit card debt
  • Personal loans
  • Mortgage loans
  • Vehicle loans
  • Student loans

To determine your net worth, simply subtract the value of your liabilities from the value of your assets. Ideally, this list is short and the final tally of your combined liabilities is small. If not, a strategy for paying down your debts is a key item for your financial to-do list.

Calculate Your Credit Utilization Ratio

Your credit score is the three-digit number that tells lenders how responsible you are when it comes to managing your money. Your credit utilization ratio accounts for 30% of your FICO credit score. This ratio is simply the amount of debt you owe versus your total credit limit. To calculate your utilization ratio, first add up all of your outstanding credit card balances. Then add up your individual credit lines for each card. Finally, divide the total balance by your total credit line and multiply the result by 100.

For example, let’s say you have five credit cards with a combined credit limit of $25,000. You owe $2,000 on each card, for a total of $10,000. If you divide $10,000 by $25,000 and multiply by 100, your utilization ratio would come to 40%. Ideally, you should be using 30% or less of your total credit limit for a healthy credit score. (For more, see Improve Your Credit Score by Adding a Credit Card.)

Scan Your Credit Report and Score

You should regularly check your credit report and score throughout the year. You can do this every day if you like on Credit Karma without knocks to your credit report. In addition, you can get a free official report from each of the three main credit bureaus (Equifax, Experian and TransUnion) every year through AnnualCreditReport. The best way to monitor your score is to ask for a report from a different bureau every four months – by the end of the year, you'll have heard from all three. 

Monitoring is important for several reasons. First, it allows you to see how your score is changing over time and what may be increasing or decreasing it. Paying your mortgage 30 days late, for instance, can knock as much as 100 points off your score. 

Next, keeping an eye on your credit allows you to spot errors or inaccuracies that could be dragging down your credit score. The Federal Trade Commission (FTC) estimates that one in four consumers has at least one error listed on his or her credit reports. Disputing these errors can positively impact your score – but only if you know they’re there. 

Finally, regularly checking your credit report is a smart move if you’re concerned about identity theft. If you see an account on your report that you don’t recognize, that’s a red flag that someone may have gotten access to your personal information.

Review Who’s Helping You to Manage Your Money

Working with a certified financial planner, an accountant or another financial professional can be helpful, particularly if you’re managing a fairly large base of assets. Making sure that you have a good relationship with the people you’re trusting with your money is a must.

At least once per year you should take a look at what it is your various advisors are helping you with, what kinds of fees they’re charging and how satisfied you are with their services. If you find that tracking down your accountant is always a hassle, or if your wealth manager is trying to steer you toward products you don’t want, it may be time to consider taking your business elsewhere. (For more, see Do You Need to Change Your Financial Advisor?)

The Bottom Line

Your annual personal financial inventory helps you understand how your finances change from year to year. Completing the inventory for the first time may be an eye-opening experience if you have more debt than you anticipated or you’re not saving as much as you thought. Knowing where you stand can put you in a better position to address any potential trouble spots in your annual financial plan moving forward



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