Personal Finance - Part I

Hey guys,
So recently I've been taking a seminar on personal finances and it's really interesting. I thought I'd share it with you guys because this is something everybody needs to know. And not just students either! There are a bunch of different tips one can use to master one's own personal finance, and I present to you Part 1 of the Personal Finance series, right here on AlphaBetaLife.

The Personal Finance Series
Part I: Take Inventory.

The first thing you need to know in order to [re]gain control of your personal finances is to understand where you stand. This can be seen as from the accounting perspective of assets and liabilities. In layman's terms, assets are everything that you own and liabilities are all your debts.

Create a simple balance sheet for yourself, much like a company does every couple months. Write down "Assets" as the heading and hammer out everything that you own on that one sheet. Have a chequing account at the Royal Bank? Then enter a line "Cash - $XXX". Own a house? "Property - $XXX". Got a GIC or buy stocks in your spare time? "Short-term Investments - $XXX". Sum this all up; this is your Total Assets.

Next, sum up all of your liabilities. So put that as a new header under your list of assets, and figure out everything you owe. Owe your friend some money that you expect to pay back? "Loan - $XXX". Credit card bill? "Accounts Payable - $XXX". You can further differentiate these based on time: The "liabilities" heading can be broken down into "current liabilities" to list everything that you expect to pay back within the year. "Non-current" would then be everything you'll pay back later than a year.

All these line items can be named whatever. So instead of "Accounts Payable" feel free to put "Credit-Card Payable" or whatnot. It's just that accountants have a set of predefined account titles that are almost universal.

Now once you have the Total Assets and Total Liabilities, subtract liabilities from assets. Congratulations, you have just found out exactly how much money you are worth. This will be very important later for Part II: Plan Ahead.

So stay tuned!