Taking Your Personal Financial Inventory

Whether you opt to handle your debt load yourself or hire a professional, you're going to need to grip on where you stand financially. Unfortunately, we Americans don't do that very well.

There's an old joke about a guy on his hands and knees looking for some lost money on the street one night. A cop pulls up and asks the man what he's doing.

"I'm looking for $20 I lost on Mulberry Street," the gent responds. "But this is Maple street," the cop answers.

"I know," says the man, still crawling along the pavement. "But the lighting's better on Mulberry Street."

When it comes to managing our own debt and our own money, many of us make like the guy on Mulberry Street. We try to take the easy way out, common sense be damned. Whether it's the loudmouth trader bragging about his big score that day, but who can't balance his checkbook, or the crazy person down the block who stuffs his savings into a mattress "because it's a well-known fact that Martians actually run the banking industry", some people just don't want to take the time to manage their money correctly.

Not managing your money correctly is a crying shame. Paying closer attention to your personal financial situation is one of the smartest moves you'll ever make. Sure, you check your mutual fund every day, and you may always be on the lookout for the next hot tech stock, but that's not what we're talking about.

No, we're talking about the more mundane side of the money picture. Knowing your net worth, crafting a household budget, understanding the machinations behind credit and debt, and the importance of paying yourself first. These - and not the next dot.com supernova - are the cornerstones of your personal financial portfolio. Knowing the financial basics not only will give you a significantly greater sense of security, it will also give you a nice launching pad to arranging the finances you need to attain financial freedom.

Unfortunately, most people address their financial planning in ambiguous terms. They want their money to grow, and may measure performance against the stock market, but they don't look at what they really need to have happen. What's more, they don't consider the effects of spending and borrowing in concert with the positives of saving and investing.

As the old adage says, you've got to walk before you can run. So it's imperative that you have your everyday financial life in order. In Chapter 12, we will examine the key first step in doing just that.

Know Your Net Worth