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Tuesday, March 13, 2007

Budgeting Tool #3: Asset and Liability Tracker

The third and final tool I will be presenting in regards to Budgets is the Asset and Liability Tracker. This tool allows the users to see developing trends in their financial situation. They may see their assets growing, the may see stagnancy, they may see debts increasing, they may see their debts decreasing, or any combination of the above. This tool is a fantastic motivator!

A simple way to organize this tracker is using a computer spreadsheet. You can track your assets monthly or quarterly. Monthly tracking is important for anyone applying for a loan as you will need to have your assets and debts at your fingertips. I also recommend it for anyone trying to quickly build assets or eliminate debts.

Those who are not working towards a very, very immediate goal will find quarterly tracking helpful. Keeping track quarterly will help you remember to look at any brokerage statements and will help keep you on track tax wise, as you might find yourself needing to pay estimated when times are good.

The assets on your spreadsheet can be listed in their order of liquidity and subtotalled and finally totalled, much like a corporate financial statement. Checking Accounts come first, followed by Savings Accounts, Mutual Funds and/or Stocks and Bonds, 529 College Savings Accounts, and Retirement Accounts.

The liabilities can be listed in many ways. I would recommend listing them in the order you plan to pay them off (usually determined by the annual interest rate): normally credit cards, student loans, auto loans, and home equity lines of credit, and mortgages.

Like I said above this tool is a fantastic motivator. While Tool #1: The Budget allows you to see trends developing as you attempt to cut costs, Tool #3: The Asset and Liability Tracker lets you see the big picture. It lets you really experience the "8th Wonder of the World: Compounding Interest. Hopefully the compounding is working in your favor. :)

Previous Budget Posts: Budgeting Label

Tool #1
Tool #2

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