Creating Balance Sheet
Create a balance sheet based on the prior steps in this article to illustrate your current finances. Take a close look at it and try to identify and changes. You can make to increase your wealth. Sometimes reaching your financial goals can be as simple as refocusing the items on your balance sheet. Here are some brief points of consider;
Is the money in your emergency fund sitting in an ultra safe account and earning the highest interest available?
Bank money market account or money market funds are recommended. The safest type of account is a U.S. Treasury money market fund. Bank are backed by the Federal Deposit Insurance Corporation while U.S. Treasury securities are backed by the “full faith and credit” of the Federal Government.
Can you replace depreciating assets with appreciating assets?
Say that you have two stereo systems. Why not sell one and invest the proceeds? You may say, “But I bought that until two years ago for $500 and if I sell it now, I will only get $300. That’s your choice. You need to decide what helps your financial situation more a $500 item that keep shrinking in value or $300 that can grow in value when invested.
Can you replace low-yield investment with high yield investment?
May be you have $5000 in a bank certificate of deposit earning three percent. You can certainly shop around for a better rate at another bank, but you can also seek alternative that can offer a higher yield, such as U.S. Savings bond or short-term bond funds.
Can you pay off any high-interest debt with funds from low-interest assets?
If, for example, you have $5000 earning 2 percent in a taxable bank account, and you have $2500 on credit card charging 18 percent, you may as well pay off the credit card balance and save on the interest.
If you are carrying debt, are you using that money for an investment return that is greater than the interest you are paying?
Carrying a loan with an interest rate of 8 percent is acceptable if that borrowed money is yeilding more than 8 percent elsewhere. Suppose that you have $6000 in cash in a brokerage account. If you qualify, you can actually make a stock purchase greater than $6000 by using margin. You can buy $12000 of stock using your $6000 in cash, with the remainder financed by the broker. Of course, you pay interest on that margin loan. But what if the interest rate is 6 percent and the stock you are about to invest has a dividend that yields 9 percent? In that case, the dividend can help you pay off the margin loan, and you keep the additional income
Can you sell any personal stuff for cash?
You can replace unproductive assets with cash from garage sales and auction web sites.
Can you use your home equity to pay off consumer debt?
Borrowing against you home has more favorable interest rates, and this interest is still tax deductible.
Paying off consumer debt by using funds borrowed against your home is a great way to wipe the slate clean. What a relief to get rid of your credit card balances! Just don’t turn around and run up the consumer debt again. You can get overburdened and experience financial ruin.
The important point to remember is that you can take control of your finances with discipline.
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