It is times like now when taking inventory of your financial life is a good idea. Knowing where you stand will help you immensely when planning your next steps. There are five simple things are important to know when a cash flow crisis may be coming (or is already here).
Income- Both Gross (what you make before taxes and retirement plan contributions) and your Net (what you get in the hand or bank account).
Expenses- Knowing what you spend will help you take control and make smart decisions. Tracking using an app on your smart phone or having your bank tell you what you spend are both good starts. Writing it down yourself (electronically or on paper) will give you a better handle on the money going out.
Balance Sheet– Write down what you own (assets) and what you owe (liabilities). The result is your net worth. Separate your liquid assets such as bank accounts, brokerage accounts, cash value in life insurance from your illiquid assets as your home and retirement accounts. This will allow you to see the assets you can easily access if you need ready cash. Your net worth statement is a snapshot of how things stand now. It is very helpful to update your balance sheet annually.
Bills– You may forget these when you track your expenses. These are the ones that are automatically paid from your bank account or on your credit card. These bills are from companies that can be called in a cash flow crisis to ask for lower and/or deferred payments or even cancel if you no longer need or use the service.
Credit Report– You can get a free credit report every 12 months from Experian, TransUnion and Equifax. That means you can get a report every four months. http://www.annualcreditreport.com. This will help you know where you stand on your accounts. It may also show if there is any identity theft.
In addition to these, many of our classes talk about having an emergency reserve fund and it is now that the importance of having these funds shines. We recommend having 3 – 6 months of expenses saved in a savings account or equivalent. Now could be the time to use that rainy day fund.
There are many other resources, challenges, and ways of coping in times of a cash flow crisis. Managing Money in Times of Crisis is our great new class that addresses concerns and gives participants solid steps to move forward when cash flow becomes the biggest financial roadblock.
Financial Knowledge 