Personal Finances for Millennials
The first step to getting your personal finances in order is figuring out your personal cash flow and net worth. You want a positive cash flow and net worth but you need to accurately calculate both to see where you stand. Once you have your cash flow and net worth figured out, you can set a plan that fits you.
Personal Cash Flow
One of the first things I learned through my business that I transferred to my personal life is monitoring your cash flow. At the end of the day, life is just a series of cash flows. As long as you maintain a positive cash flow, you can obtain your financial goals. Most people don’t take the time to do this, but then they are surprised at the end of the month that they spent more money than they earned. Next thing you know, they have a ton of debt and no plan to get out of it.
Personal Cash Flow Statement
One of the first things you can do is figure out a personal cash flow statement. This is just a basic document that measures your inflows and outflows in order to show you your net cash flow for a certain period. Depending on your personal situation, you can determine what period makes the most sense but I would recommend monthly.
Some examples of inflows would be the following:
- Interest from savings/checking accounts
- Dividends from investments
- Capital gains from the sale of stocks or bonds
And some examples of outflows would be the following:
- Rent or mortgage payment
- Utility bills
- Groceries/eating out
At the end, you want to subtract your outflows from your inflows and hopefully, it is positive.
Personal Balance Sheet
The next thing you want to figure out is your personal balance sheet. This is basically a look at your personal wealth and a summary of your assets (what you own) vs. your liabilities (what you owe), thus showing you your net worth.
There are a few different kinds of assets. I’ve outlined them for you below:
- Liquid assets: These are assets that can be converted into cash quickly with little to no loss in value. Some examples would be checking accounts, savings accounts, money market accounts, and cash.
- Large assets: These are items that are larger and typically take more time to sell and could result is a significant loss in value. Some examples would be houses, cars, boats, furniture, etc. Make sure to always use the market value of these items, you might have to do some research to see what current sales have been.
- Investments: Stocks, bonds, mutual funds and real estate. Like large assets, you want to use the market value of these investments.
Liabilities are basically what you owe. That includes payments on loans and your mortgage, current bills, credit card balances, etc.
Once you have your assets and liabilities calculated, you can figure out your net worth. Simply subtract your liabilities from your assets to figure out what you’re worth. If you have a positive net worth, you’re doing a good job. You own more than you owe. If you have a negative net worth, that means you owe more than you own. If that is the case, you need to take a look at things closer and see how you can fix that.
Final Thoughts on Personal Finances
Taking the time to figure out your personal net worth and cash flow are important steps to getting your personal finances in order. It gives you a great snapshot on where you are so you can evaluate what you need to do. If you are negative, you really need to change things. If you are positive, good job but you may still want to make some changes and fast track you to your goals. Either way, don’t get discouraged, it’s never too late to get you going.