- STEP #1: Create a Balance Sheet
- Assets are those physical items you own which have a calculated worth in dollars. They include vehicles, real estate, and equipment. They also include your house even if it has a mortgage, retirement funds, and any savings. List each item alongside its valued dollar amount and calculate a total.
- Liabilities include all financial obligations including credit card balances, loans and mortgage payments. List the outstanding dollar amount remaining for any mortgage or loan. Calculate a total.
- STEP #2: Calculate an Income Statement
- Income calculation will be different for everybody. Some of us have reliable W2’s and predictable paychecks, while others don’t. If you are self-employed, work on a per commission basis, or have seasonal employment, average your income by looking at last year’s taxes, or by factoring in all income streams and dividing by twelve to find a monthly average.
- Expenses include all money that goes out and this is where you might find some surprises. Just how much are you spending each month at Starbucks? Look at credit card statements, paper receipts, and monthly bills. Include fuel for both yourself and your car, bills for phone, internet, and insurance. Also include a category for repairs and maintenance such as regular oil changes. Create a miscellaneous category to include those unexpected expenses that come up periodically.
- STEP #3: Identify FIXED and VARIABLE
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