Graduate Call Notes 11-25-14: Financial Tools

Tools that allow us to work a Personal Financial Independence Plan:

Today on our Financial Graduate Call we discussed important tools that allow us to reach our goals of Financial Independence.

The first tool we mentioned is using some type of financial spreadsheet or software to start to document one’s personal spending. This is critical to start with.

Many people don’t know exactly where they are in relation to their finances. They may feel that their situation is grim but they don’t know the facts until they record them. We mentioned using a financial spreadsheet that can document your expenses, income, categories of spending, assets, liabilities, and net worth.

We also mentioned that there are many types of software found off of the internet that can facilitate the same benefits. One of these not condoned by our company is Mint. It can be found at mint.com and using it is suppose to be free. One can download the software and it can be used on your computer, tablet, or smart phone. One advantage of Mint is that it can sync with your personal banking checking account and allow you to see easily the transactions you have made. It also has all types of fancy graphs and pages that give you a clear idea of your spending habits. A disadvantage is that although the Intuit Company that owns Mint says it is secure, you are sharing your information with Intuit.

Using a financial spreadsheet allows you to see the basics of your expenditures and you are in control of what electronic device you put it on and you don’t have to place your information online.

Either way, the important part is monitoring your amount of spending in each category that you create. This can allow you to see which areas of spending are fine and which ones you might be spending more than expected.

Another tool that can benefit a person on their personal finances is monitoring their net worth. To calculate your net worth one can use the financial spreadsheet or mint to list out the balances of one’s assets or items of value. Then, one can list out one’s liabilities or balances of one’s debt. The total of one’s asset’s minus one’s liabilities gives a dollar amount of net worth. Sometimes that value is a negative, a break even, or a positive. As one pays down their debts each month, the liabilities can be adjusted accordingly and in turn the net worth can be calculated each month to show the progress in paying down the  debt.

A final tool we discussed is to list out the liabilities and then choosing the best plan to pay off one’s debt in the fastest order. Usually the best order will be going after the highest interest first followed by the next highest interest, and so on. If one has any extra money at the end of the month, that amount would be paid to the highest interest debt. All other debts would be paid their minimum payment. When the 1^st debt is completely paid off then the total amount of money that was being paid to the 1^st debt would then be continued to be paid but now onto the 2^nd highest interest debt, and so on and so on.

This plan can allow one to have peace of mind knowing that by using this simple plan one can pay the least amount of debt in the shortest period of time.