The Money Game

If you want to "win" at the money game, you need to know the rules and you need to know the layout of the board. (I'll introduce the rules in a later post). Having a clear picture of your current finances is important for two reasons - it helps make decisions about what to spend money on and, more importantly, provides peace of mind that you have taken the first step towards getting things under control. There are two steps involved in seeing the "state of play" and I'll introduce the first here - your Net Worth.

I'm sure most people have heard the term net worth before. I had previously assumed it only applied to millionaires and such, but it's an invaluable figure for everyone to know. For some people, their net worth is going to be negative (more debt than savings / assets), for others it's going to be about zero (some debt and some savings) and for others it will be a positive number of some sort. Remember that no matter what it turns out to be for you, it's just a number.

Get a pen and paper (or spreadsheet or whatever works for you) and start to make a list of all of the following that you have:

Credit cards
Savings Accounts / ISAs
Pensions / SIPPs / Company Pension
Mortgages
Overdrafts
Store Cards
Houses
Shares / Funds
Loans (don't count a Student Loan if you are in the UK - it's not a normal loan)
Cars
Stuff you own (only include the more expensive stuff)

Now you need to do some research into how much money each of these items is right now - e.g. log in to your accounts online or dig out the latest statements. For the house, try to be as honest as you can about its present value and the same for the car (don't use the purchase price in either case). For the expensive "stuff" you own, like TVs, furniture, jewellery etc. use their second-hand value too - either try to be honest with yourself or use Ebay to get an idea of how much they would sell for.

Don't start to add up the total figures from these things yet - I'll explain how to do that in another post. For now, just make the list and get the numbers.

Depending on how active you are with your finances, this could be a fairly simple exercise or it could be a big fat pain. Try to make it as fun as possible, knowing that this is an important step in working towards improving your life. This is, after all, what this blog is about. Speaking from personal experience, I'm a lot happier since I improved my finances and my health. Not because money makes me happy (it doesn't, it's just a tool), but because understanding money and knowing you have it under control allows you to relax and get on with the things that are important to you.

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