In Step One, we looked at the importance of making a budget as the critical first action to achieving financial success in your marriage.
Today, we’ll take a look at the next “baby step” on your journey to meeting your goals with money. If you find that you are beyond these early milestones, please share your success in the comments below and stay tuned as we’ll catch up with you soon.
After your budget is in place, it’s time to stare into the face of your financial reality. For many of us, this can be a scary proposition as we’ve conveniently put aside any real thought about our money management and the current status of our accounts, bills and debts.
It’s time to figure out exactly where we stand in our family finances.
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Take a Financial Inventory
If you haven’t paid much attention to where you stand, I know it can be intimidating, especially if you have significant debt. Fortunately, Bethany and I were never behind with our bills or late on any accounts.
However, I still remember the day I totaled up our outstanding consumer debts (debts other than a mortgage) and had a short panic attack when the calculator showed more than $54,500!
How did this happen? We were doing well financially…except in reality we were not. When we added up our miscellaneous debts such as car loans, student loans, furniture loans, small credit card balances and even a 401k loan (gasp!), it hit us hard.
We had A LOT of debt over our heads, and we were expecting our first child at the time. Big Time Eye Opener!
If you haven’t already done so, make a list of your outstanding debts and get current balances on each. This list will be very important in a few weeks as we begin to attack every debt and KILL IT permanently. But for now, our focus is on getting a solid handle on where we stand.
It’s time to take a full financial inventory to get a clear picture of the following:
- Non-Mortgage Debts
- Mortgage Debts
- Savings Accounts
- Checking Accounts
- Savings Bonds
- Cash Savings
- Insurance Policies
- Retirement Accounts
- Estimated Value of Your Assets
- Monthly Income & Monthly Expenses (this should have been done with your budget)
This is also an excellent time to pull a copy of your credit report to check it for errors. Your credit report will also give you a full listing of your outstanding loans. You can get a free credit report from each of the three major credit reporting agencies once per year at AnnualCreditReport.com
Once you have a tally of your assets and your liabilities (debts), you can calculate your current net worth. This is the best measure of your financial progress over time since it reflects both the reduction in your debt load and the increase in your savings and investment values. I really like this net worth calculator from Bankrate to guide you through the details.
Be sure to write down your current net worth and today’s date so you can look back at this number and celebrate your achievements as we move forward!
Get Current On Your Bills
Before we move forward increasing our savings and paying down our debts, though, it’s important that we first get current with all of our creditors. If you are behind on any bills, it’s time to get caught up and start making the required minimum monthly payments.
In the case of very old debts that haven’t been paid in a long time, there’s a chance that the creditor will settle the account for much less than the total outstanding balance (especially when interest and penalties are included) since they’ll be happy to simply get paid anything. If you are facing this situation, it’s important that you call each creditor individually and strike a deal before moving onto the next. You don’t want to “reawaken” a bunch of creditors at the same time!
Although it can be tempting to turn away from the mess of past due bills and let someone else take care of it, the reality is that debt consolidation companies are not all that they advertise to be. If you are seriously behind, I’d encourage you to read more about the truth behind these companies and seek a financial counselor to help you get current.
What Do You Think of Your Net Worth?
If this is the first time you’ve calculated your net worth, you may be wondering whether it’s good or bad. You can check out the typical net worth of Americans in your age range and salary level at this website to get a relative idea of your current standing.
However, the really important measure of your net worth is how much it increases over time. And we’ll be starting to work on that in Step 3!
Here’s a rundown of all the posts available to you in the Marriage Money Management series: