Am I Doing OK? How to Take a Financial Inventory

It’s important when making a change to know where you’re starting from. If your goal is to get a faster running pace, the next question is: how fast do you run now? If your goal is to lose weight, “how much?” comes naturally.

So when your goal is to improve your finances, you have to know where you’re starting from. This is important because it serves to give you a benchmark to look back on, a spot to measure your progress from. It also does the important job of focusing your attention on something that you may be struggling to deal with or that you’ve wanted to avoid.

It’s very common to want to start changing your financial situation because your current financial situation feels bad. You feel stuck, overwhelmed, anxious, embarrassed. You feel hemmed in. Most importantly, you don’t feel free.

It’s very common to not know exactly what you want to change, and that’s where a financial inventory comes in. It gives you a base measure and it also serves to help you figure out where you begin, how you prioritize the multiple competing goals that come out of it, and the real story (instead of the monster in the closet that your brain has conjured).

So how do you take a financial inventory? What gets included? How much detail do you want?

There are a couple of obvious ones, and these definitely get included:

  • Assets - current value of:
    • Cash in the bank

    • Major assets like a home or other real estate

    • Retirement savings

    • Investments other than retirement

  • Debts - amounts owed on:
    • Mortgage

    • Car(s)

    • Student loans

    • Credit cards

    • Money owed to family

    • Back taxes

  

There are also a few others that are important and often overlooked when getting a baseline on your financial health. These might be things you’ve thought of and they might not. The goal here is just to start thinking of them and being aware of their importance in your life. These include:

  • Are you able to pay all of your bills each month without worrying about having enough in the bank to do so?

  • If you use credit cards, do you pay them off in full each month?

  • Do you have a savings account that you don’t touch except to put money in?

  • Are you currently savings for any taxes owed for this year?

  • Do you have an emergency fund (of any size?)

  • Are you adequately insured against emergencies? (life, disability, health)

  • Are you regularly contributing to a tax-advantaged retirement account (like a 401K, 403B, or IRA)?

  • If you have children, have you opened a college savings account for them?

Seeing this list might make your head spin. That’s OK. You don’t need to be here yet, and it’s normal to have more questions about some of the specifics of these, but for today I simply want you to be asking yourself the questions and doing a little work around what comes up there.

Your next steps are to gather the answers to these questions and if anything starts feeling restless for you, listen to that. If doing this exercise makes you realize that you have too many bank accounts, consolidate them. Or if you are inspired to finally look into buying life insurance, do that (get term).

It’s important to remember that you’re starting here - not ending here, and that someone else who started earlier might be at a different point. This is your jump off point, not your landing site.

How does it feel to know where you’re starting from? Tell me in the comments!