Fundamentals of Financial Awareness

Financial Awareness - Light BulbDo you ever feel like you don’t really know exactly where you stand financially?

Are you spending too much? Are you saving enough? Are you even moving in the right direction?

Every adult should have a basic awareness of their financial position. Two of the best tools to start with are a net worth statement and a cash flow statement. You might be thinking, “I kind of know my cash flow and net worth,” but it is crucial to get it down “on paper” and track it over time. The year over year comparisons are very informative and can motivate you to build your net worth and steer you away from making costly financial mistakes, such as spending too much on a house, car, or lifestyle instead of directing that money towards your future.

It’s a great step towards your financial well-being and paves the way for important next steps like having an emergency fund, proper insurance coverage, and getting your estate documents in order. A good Certified Financial Planner™ professional can provide guidance in each of those areas.

What are net worth and cash flow statements and why do I need them?

A net worth statement is a snapshot in time that tells you what all of your assets minus liabilities are worth in dollars. By having a net worth snapshot year after year, you can track your progress and easily identify which assets are growing, which are not, and if your liabilities are being paid down. If you see your debts growing, that’s a red flag that you could be incurring higher interest rates or finance charges or you are biting off more lifestyle than you can afford.

A cash flow statement shows your income and expenses and answers that common question, “where is my money going?” Are you paying for things that you no longer use or need? It’s often those recurring expenses that put a significant drag on your cash flow over time. Cancel a subscription to a magazine you never find time to read or cancel the gym membership you never use.

Once you have the data, you can analyze it in different ways: needs vs wants, his vs hers, fixed vs variable, value vs waste, and cash flow timing. You can make projections for the future and goals to achieve each year. It establishes a baseline so you can see if you are climbing out of debt or sinking deeper. As you move past paying off debt or living paycheck to paycheck, you start to see the savings rate go up, which in turn, motivates you to be diligent and save even more. You develop a savings rate that can be monitored and adjusted for your long term needs.

How do I create these statements? A net worth statement is relatively easy, you can list your assets and liabilities with a pen and paper or enter it into Microsoft Excel. Creating a cash flow statement can take more time and energy. If you are tech savvy, the most efficient way is to use a free online service such as Other options would be to enter your income and expenses into a Microsoft Excel cash flow template, use Quicken software, or log them on paper. This link will show you some examples or email us at and we will send you the templates we use.

If one spouse handles most of the finances, a cash flow and net worth statement is a great resource and communication tool to explain what is going on to the other spouse. Regularly updating your statements gives you a heightened awareness of your overall financial situation and prompts you to make adjustments. Schedule time to create your statements today!

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