Do you do a State of the Union type analysis on your budget? It is a financial analysis of your true financial position. We do and I urge you to as well. We have been doing this since we moved into our first house. We do it yearly, sometimes even six monthly. It is a great visual and awesome motivation for you and your family to actually track and visualise your financial situation.
What is your financial situation? Do you know what your financial situation is? Honestly? Some people can quote every debt they have others, not so much. Your true financial situation is what would be left if you sold everything. For example (a not very nice example) if you died. Would you leave debt? Or would your leave money? Very early in our marriage we would have left debt. We bought a house at what was a high time (unknown to us), followed by the GFC. Not great for resale. I had a nice chunk of debt and my car was worth nothing (not that cars are ever a great investment). So this is an example of what a State of Union Financial Analysis would look like.
ASSET WORTH OWING
House $300,000 $280,000
Cars $15,000 $15,000
Credit Cards $6,000 $0
TOTAL $321,000 $295,000
So your financial position would be $26,000 in credit.
Not bad you say, well it’s not great if you take into account 2 people earnings, age, etc. What have you been doing with your money?
Why is it important to know? It is important that you know exactly your financial situation, so you can take charge of your finances. Once you start doing this regularly you understand your finances and what is important, and what is not. This type of analysis is a great motivator, we started doing it when we didn’t think our finances were too bad (boy were we wrong!) It is a great motivator to be able to see how much progress you have made this year. It is also a great motivator to stay on track.