Are You Ready? Pre-Step 1

On my way into the office this morning my body was feeling beat up (rough work out week), but after a good night’s rest I was energized and ready as I headed in. I thought to myself I’m here at work to do 3 key things.

1. Direct some lives, engage with people and do some work that I can be proud of

2. Earn my wages to provide for my family and invest for OUR future

3. Earn my wages so that I can give generously to my church and others

Now that is my focus and plan. As I reflected upon those 3 things above it made me feel good, as I realized my investing right now currently mirrors my giving pretty closely. Yes, I invest as much as I give from each paycheck, just about. What a blessing it is to be able to do so.

I will say it was not always this way, I used to give marginally, then I used to give more then I invested, but at this point I got to a balance. How you ask? Great question!

I call this these the pre-steps. If you are reading my blog, listening or reading stuff on getting out of debt, you know there are some simple steps to help you get out of debt, but these only work if you start on the ground floor and lay the foundation for what you are planning ahead. We all know a house without a foundation is doomed to failure. The Bible says in Matthew 7:24-25 KJV

“And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock.

And every one that heareth these sayings of mine, and doeth them not, shall be likened unto a foolish man, which built his house upon the sand"

Christ is obviously talking about our spiritual foundation, but the same applies to our well-being foundation. We have to do some initial ground work to get our house in order before we can start getting out of debt and living for the future, so here are my basic steps to get started.

STEP 1: Know Where You Stand

Before you start doing anything you have to know several key things, what is your income, what are you worth and what do you owe.

For the salaried worker this is pretty simple. Take your stead paycheck and look at it, write it down, what is your gross and what is your take home pay. Do you understand everything coming out of your paycheck. Did you sign-up for all these things?

For the hourly worker, this can be a little more complex. You are going to need to look over the past few months, look at your high pay weeks, low pay weeks and everything in between. Do you know what causes the cycles, is it just hours, is it your ability to pick up extra shifts, is your work cyclical, meaning some months it is high and others low. Once you have these factors taken into account, you are going to need to know your yearly income from your taxes, spread that out over the course of the year, and then come up with a monthly/weekly wage. Match them up to your last month or so of paychecks and come up with a number. I still want you to take account for those low months so you know what to expect.

For the small business owner, this can be simple or hard. Your business income needs to be separated from your income. Too many business owners mix these 2 areas together and that can create a mess for your personal budget. If you are a business owner, you need to figure out a way to pay yourself based on the income from the business, how much is coming in to the business, how much is covering the expenses of the business, and how much are you earning for the business. When you actually pay yourself instead of just flowing income it changes your view on the business and will lay the groundwork for a healthy relationship between your business and your home.

Now that you have your income, what are you worth. It is time to total up all your assets. That includes all your money accounts, plus anything you own. Yes, everything, you can be as detailed as you like, or as loose. I would separate depreciating assets from appreciating assets. Depreciating assets are all those things like cars, computers, phones… Appreciating assets are bank accounts, investment accounts, Homes, etc. Total those all up, but wait you’re not done yet. Now list out your liabilities/debts, everything you owe, credit cards, student loans, car loans, mortgages, medical bills… Total the debts up. Now subtract the first total (assets) from the second number (liabilities/debts). This is your financial net worth.

Is that number what you expected? Is it positive or negative? How does that number make you feel?

If you are in the negative, don’t worry about that, it is actually quite normal for people to be in the negative, especially if you are young, just out of college and have some large student loan balances, or if you are a bit older and let life get ahead of you a bit without realizing it. You are not alone, 10.6% of US Households actually have a negative net worth. If you look to Hollywood, I found a top 10 list of celebrities that actually have a negative net worth, including Dennis Rodman, Gary Busey, Randy Quaid, Stephen Baldwin, Sinbad, Chris Tucker, 50 Cent and I’m sure a host of others.

Now that you know what your earn and where you stand, you have the starting point. Next post, we will dig into step 2, knowing your expenses and helping to dissect the best way to plan for those and get things in order.

Spend some time over the next couple of days pulling together your net worth and laying the blocks of that foundation.