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Are
You Financially Fit?
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by: PT
Cheng
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When it comes to health, you go
for a medical checkup to see if you're physically
fit. The medical report will tell everything about
your health.
But when it comes to wealth, it's as important
that you do a regular checkup for your financial
health. You need to know where you are financially
before you decide what you want to achieve
financially.
What do you do to ascertain your level of
financial fitness?
You can use financial statements to determine your
financial fitness. They are income statements and
balance sheets.
It sounded boring and alien to me when I first
prepared my income statement and balance sheet.
The process is tedious as you need to dig out
things and get them organized in a proper format.
But I can tell you once you've done this checkup,
you'll have a clear picture where you stand
financially and you can take the necessary
measures to achieve financial freedom.
Besides that you'll be more in control of your
money and know how to spend your money wisely.
Let's get started to determine your financial
fitness.
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Income Statement
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First, you can prepare an income statement. An
income statement is also called profit and loss
statement. An income statement consists of two
sections: monthly income and expenses.
Your income would probably comprise salary, rent
from real estate, dividends from stocks and bonds,
interests from savings accounts, and royalties.
Your expenses would be food, clothing, utilities,
car loan payments, credit card payments, home
mortgage payments, medical expenses,
entertainment, insurance payments, charity, taxes,
and education.
List down your income and expenses into each
section accordingly. Then calculate your total
income and expenses.
Once you've done that, it's time to calculate your
net income. Net income is the difference between
your gross income and expenses:
net income = gross income - expenses
If you have a negative net income, it tells you
that you spend more money than you make. You'll
have to have plans to reduce your spending or
increase your income.
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Balance Sheet
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Next step is to prepare a Balance Sheet. Like
income statements, balance sheets also have two
sections: assets and liabilities.
Assets are your cash, real estate, car, bank
accounts, stocks and bonds, mutual funds,
retirement accounts, and businesses.
Liabilities include mortgages, credit card loans,
car loans, personal loans, education loans, and
taxes.
Prepare your own balance sheet by listing down
your assets and liabilities. Calculate your total
assets and total liabilities.
The following step is to calculate your net worth.
Net worth is the difference between total assets
and total liabilities:
net worth = assets - liabilities
Net worth is usually used to determine whether a
person is wealthy.
You deserve a pat on your shoulder if you've come
so far with me. By doing this simple exercise, you
are one step ahead of many people.
You'd have known the level of your financial
fitness by now.
So, are you financially fit?
To help you with this exercise, you can use our
free money worksheet at http://www.financiallyrich.com/wealth-calculator.asp
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