Download the free mortgage toolbar today

Are You Financially Fit?
By PT Cheng

When it comes to health, you go for a medical checkup to
see if you're physically fit. The medical report will tell
everything about your health.

But when it comes to wealth, it's as important that you do
a regular checkup for your financial health. You need to
know where you are financially before you decide what you
want to achieve financially.

What do you do to ascertain your level of financial fitness?

You can use financial statements to determine your
financial fitness. They are income statements and balance
sheets.

It sounded boring and alien to me when I first prepared my
income statement and balance sheet. The process is tedious
as you need to dig out things and get them organized in a
proper format.

But I can tell you once you've done this checkup, you'll
have a clear picture where you stand financially and you
can take the necessary measures to achieve financial freedom.

Besides that you'll be more in control of your money and
know how to spend your money wisely.

Let's get started to determine your financial fitness.

----------------
Income Statement
----------------

First, you can prepare an income statement. An income
statement is also called profit and loss statement. An
income statement consists of two sections: monthly income
and expenses.

Your income would probably comprise salary, rent from real
estate, dividends from stocks and bonds, interests from
savings accounts, and royalties.

Your expenses would be food, clothing, utilities, car loan
payments, credit card payments, home mortgage payments,
medical expenses, entertainment, insurance payments,
charity, taxes, and education.

List down your income and expenses into each section
accordingly. Then calculate your total income and expenses.

Once you've done that, it's time to calculate your net
income. Net income is the difference between your gross
income and expenses:

        net income = gross income - expenses

If you have a negative net income, it tells you that you
spend more money than you make. You'll have to have plans
to reduce your spending or increase your income.

-------------
Balance Sheet
-------------

Next step is to prepare a Balance Sheet. Like income
statements, balance sheets also have two sections: assets
and liabilities.

Assets are your cash, real estate, car, bank accounts,
stocks and bonds, mutual funds, retirement accounts, and
businesses.

Liabilities include mortgages, credit card loans, car
loans, personal loans, education loans, and taxes.

Prepare your own balance sheet by listing down your assets
and liabilities. Calculate your total assets and total
liabilities.

The following step is to calculate your net worth. Net
worth is the difference between total assets and total
liabilities:

        net worth = assets - liabilities

Net worth is usually used to determine whether a person is
wealthy.

You deserve a pat on your shoulder if you've come so far
with me. By doing this simple exercise, you are one step
ahead of many people.

You'd have known the level of your financial fitness by
now.

So, are you financially fit?

To help you with this exercise, you can download free income
statement and balance sheet worksheets from 
http://www.financiallyrich.com/richdad.asp

Simply goto 'Your Financial Journey' and then 'Your
Financial Statement'. Click and download 'Financial
Statement PDF' in the 'Related Links' section.

----------------------------------------------------------
PT Cheng is the co-founder of FinanciallyRich.com. His web
site is packed with tips on how you can be your own boss,
make more money, and have fun along the way! To be the
first to receive his future articles and tips, subscribe
to his FREE newsletter at
http://www.financiallyrich.com/subscribe.asp
----------------------------------------------------------