Tuesday, February 14, 2023


Chapter 3 | What Do You Have?

Before you can create a budget, you have to know every detail of your financial situation. Although you probably understand in general how much you spend and where you spend it, you may be amazed at how much you actually spend on certain items that don’t seem like they could add up so fast.

What Counts as an Asset

An asset is essentially anything that you own. It’s necessary to know your total worth in order to figure out how to realize your dreams.

What doesn’t count as an asset is money you can’t count on; things you will or might own in the future.

Determining Your Income

Your income is the most immediate and obvious asset and the one that has the most immediate impact on your budget.

Your income includes any money that comes into your possession and can be counted on in the near future.

Whatever money comes in—money that you can count on—is what you want to consider as income.

Determine How Often You’re Paid: First, determine how often you’re paid at work:

  • Weekly: Common for temporary and contract work
  • Biweekly: The most common way companies pay their employees — usually every other Friday
  • Semimonthly: Often paid on the first and fifteenth of each month
  • Monthly: One paycheck each month
  • Quarterly: Four times a year — this is rare
  • Semiannually: Twice a year — this is also rare
  • Annually: Almost unheard of unless you’re on a board of directors

Identifying Your Sources of Income

Don’t write down the income you think you’ll have after a promotion or other situation; what you want to look at is exactly how much money you have to work with right now.

Your House as an Asset

Note that this only applies if you own your house or condo.

Understanding Equity

Equity is the portion of your house that you own, mortgage free. You can calculate your equity as follows:

1. Determine the current value of your home. This amount may be higher, and in some cases, much higher, than the amount you paid for it.
A mortgage company requires an appraisal, done by a professional, to determine this value, but you can guess, based on what homes in your neighborhood have been selling for.

2. Determine the current payoff on your mortgage. If you don’t receive a monthly statement or receipt that tells you the payoff amount, call your mortgage company and ask for it.

3. Subtract the payoff from the current value. This is the equity in your home.

Now let’s move on to your car, often the second most valuable asset you possess. If you own a car, go online to look up its blue book value. Remember that cars depreciate swiftly, so don’t be surprised if today it’s worth a lot less than what you paid for it.

(The term “blue book” in this context refers to Kelley Blue Book, which is the standard automobile valuation guide in this country. Their website is www.kbb.com. Before purchasing a used vehicle, look it up on their site and determine if the price being asked is a fair one.)

Finally, add in any extra assets, including property you own and anything of special value, such as antiques or stamps.

Now you’ve found out how much income you have and what assets you own, It’s time to take the next step: investigating how much you spend and what you spend it on.

Chapter Two | Chapter Four

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