My Net Worth

The New Year is just around the corner and with it comes the time honored tradition: New Years resolutions. No doubt, millions of Americans will resolve to improve their financial situation somehow: save more, pay down/off credit cards, start a college fund, etc.

Before a person can run, they must learn to walk. But, before that, they need to learn how to sit up, which means they need to know how to crawl, roll over, push up off the ground, etc. The point is: before anyone has grandiose plans of saving, investing, paying down debt, etc. some basic questions must be answered:

• Do I know where my money is going/has gone?
• What is my financial position as of today?

Before one builds a budget, it is imperative to know how much money comes in, where it goes, and what is left over. The old axiom: if you don't measure it, you can't manage it rings true. Would it be reasonable to set aside $300/month for groceries without knowing that you average more thant $450/month?

By understanding where the money goes, only then can realistic, rational decisions be made about the future. Often times, the light goes on and someone says: I spent $400 last month on my lunch breaks!?? It is moments like these that are the most revealing about where we think our money goes versus where it actually goes.

It is that disconnect between perception and reality (about our financial situation, monthly expenses, etc.) that makes us think everything is okay, but in reality things are different. It is this perception gap that can be bridged by developing a budget, based on a few months worth of data.