As we are beginning a new year, it’s great to take the time to review your financial progress from the previous year. A financial position review of your assets and liabilities is a critical step to finding clarity in your personal financial picture. Conducting your review at the start and end of each year is a great way to compare your progress over time much like a financial report card.
The key steps to conducting your review are as follows:
- Gather your financial statements: Create a list of all the following: your assets, your liabilities (debt), your income, and your expenses. These four items are the key financial elements that can change during the year and will ultimately affect your financial success. Watching for large increases in expenses with unequal growth in income can help you stay on top of bad financial habits before they spiral out of control.
- Calculate your net worth: Subtract your total liabilities from your total assets to get your updated net worth figure. This number can be used as a scorecard for you to track your financial health over time. It’s also important to understand why your net worth is changing, and doing this exercise is a great way of identifying what major changes have occurred in the past year. For example, taking out a mortgage or student loans will have a significant impact on your net worth. In the following years,
this tool can help you track your progress towards paying off these major debts. Finally, as your net worth changes over time, it’s crucial to ensure your emergency cash reserves can still cover 3-6 months of expenses. - Review your budget: Creating and maintaining a budget is important, but it doesn’t have to be complex. Keep it simple: take your income minus your expenses to determine your surplus/deficit. We recommend always saving first and spending later, meaning the very first expense every pay period should be whatever you plan on putting away into savings. This is a crucial step in being able to meet your long-term financial goals.
If you need any assistance with any of these steps, reach out to your Nepsis advisor for guidance. If your current advisor doesn’t assist you in a comprehensive financial position review, consider meeting with a Nepsis advisor to go over all of the services we can provide.
Advisory Services offered through Nepsis, Inc., An SEC Registered Investment Advisor.