As we close out another year and look forward to a new and hopefully more prosperous one, it is a good time to take inventory on where we stand financially in order to better prepare for the year ahead.
Sometimes we think we know the basics without having to go back through records to see what the reality of the situation is. It is revealing, however, to look in more detail at how much money we having coming in the door and even more so how much money is going out the door — and where it is going.
The first part of your financial inventory is looking at just that — income and expenses. Start by going through your income and expenses off the top of your head. Estimate what you pay monthly for rent/mortgage, electric/gas, water, cable, Internet, cell/home phone, home maintenance, transportation expenses, food (eating out and groceries), clothing/dry cleaning, HOA dues, insurance premiums, secured loan payments, daycare, pet expenses, children’s extra-curricular activities, work-related expenses, etc. Now, take a look at your paychecks over the past four to six months and get an average of monthly take-home pay. Does it differ from your estimate? Go through bank statements or invest in home bookkeeping software. See if you may be spending more in certain areas than you thought. One of the areas where we see the biggest discrepancy between what people think they are spending versus what they actually are is food. Groceries are becoming more expensive and eating out adds up quickly. Compare the total expenses against your total income. What we want to see is that after expenses, you still have disposable income for savings, emergencies, traveling, or for a rainy day.
The other aspect of your financial inventory is the asset versus debt comparison. Make a list of the assets you have and their estimated value, i.e. home, car, retirement accounts, savings, etc. and add up your total value in assets. Draw a line down the page and on the other side of the line list your debts, i.e. mortgage, car loan, student loans, credit card balances, taxes, etc. and add those together. Ideally your assets outweigh your debts.
If your situation is one where tightening the belt in certain areas will do the trick to put you back to where you need to be in your financial inventory, you have taken your first step toward solving the problem — educating yourself on the numbers. Now you can formulate a plan for success. If you look at your income versus expenses and see nothing left for a rainy day or even to make payments on high balance credit cards or lines of credit that are currently due, taking action right away is important. If your income does not support a hefty car or home mortgage payment due to decreased income or job loss, it may mean calling your lenders to inform them of the circumstances and ask for help, or it may mean seeking advice from a bankruptcy attorney.
Whatever you ultimately decide to do to make sure your financial situation is on the right track, it is important to know your options. Talking to a financial consultant, bankruptcy attorney, or accountant may give you insight into options you didn’t know existed before, or at a minimum you will have a second pair of eyes to look at your financial inventory and confirm what you already know.
• Denise K. Aguilar is a local attorney whose Ahwatukee Foothills practice focuses in consumer bankruptcy, personal injury, and family law. Reach her at (480) 455-1881.