Net worth is determined by subtracting your liabilities from your assets. The product is a real assessment of your current financial situation. Net worth and cash flow are the cumulative result of all financial decisions that we make. The net worth calculation provides a wealth of information that can be used to establish goals and develop a planning strategy. Below is an overview of the planning process. [Read more…] about How Does the Net Worth Planning Process Work?
How to Develop and Use a Net Worth Plan
Part of: How Does the Net Worth Planning Process Work?
Net worth can be positive or negative. Negative net worth is not necessarily bad. Many families begin their adult lives with negative net worth. Conversely, positive net worth does not necessarily mean that the family is “set” and finished planning. The calculation of net worth and establishment of goals provides us with the framework with which to develop our plan. A variety of tools can be used in developing the plan. [Read more…] about How to Develop and Use a Net Worth Plan
What is Net Worth?
Net worth is a valuable tool for analyzing your current financial situation, setting realistic goals and measuring progress along the way. Essentially, net worth is a measure of all of your assets minus your liabilities. Net worth can either be positive or negative. A negative net worth in early adulthood is common. Once your initial net worth statement is developed, updates and reassessment are relatively easy. [Read more…] about What is Net Worth?
What is Cash Flow?
Cash flow is arguably the most valuable money management tool. It is used in concert with net wealth and balance sheets to develop a successful money management planning strategy. Budgeting, systematic savings, debt payments are all part of our cash flow.
Cash flow is a comparison of money in versus money out. If net worth is to grow, money in must be higher than money out. Though simple in principle, this is seems to be difficult in practice. For example, the concept of “burn more calories than you take in” is simple concept as well, though as a society we seem to have just as much trouble with it. [Read more…] about What is Cash Flow?
Objectives of Money Management
Successful money management is the foundation of any financial planning. Without it, no matter how great our investing or retirement plans, they’ll likely fail. Money management has three primary objectives:
Current Needs
1. Ensure sufficient funds are available to meet current payment and spending requirements. [Read more…] about Objectives of Money Management
What is Liquidity?
Liquidity is the ability to quickly convert assets into cash without negatively affecting their value. Your need for liquidity in an investment depends on the purpose and time frame for the investment. If the investment is part of an emergency fund or for something you plan on buying in the next month, the investment should have high liquidity. If the investment is part of your retirement and you’re 30 years old, your investment should be low in liquidity in order to realize a higher return. [Read more…] about What is Liquidity?
