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Personal Finance : Preparing Yourself : A Worksheet

June 19, 1988

Assets:

Liquid assets include cash and items easily converted into cash. It's important to have enough cash in bank accounts, mutual funds or stocks and bonds to cover at least three months' living expenses. If not, you may not have enough money to handle emergencies, such as a sudden illness or loss of a job. Illiquid assets cannot easily be converted into cash. Don't forget to include the value of your company pension plan when figuring the worth of your retirement fund. As for your possessions, value them conservatively at what you reasonably could get if you had to sell them in a hurry. A family heirloom might be worth a lot to you but not to someone else.

Debts:

Include any unpaid rent or current mortgage bills, charge account balances, utility bills and taxes. Outstanding loans include the total balance of your mortgage, home improvement loan, car loans, student loans, securities margin account and money borrowed from Aunt Millie.

After-Tax Income:

When computing your annual gross income, don't overlook interest and dividend income, child support and alimony payments received, social security income and rental income. You can find your after-tax income on the tax form you filed with the Internal Revenue Service.

Expenses:

Be careful not to underestimate your expenses. Go through your checkbook and credit card statements to find out how much you spent on rent and utilities, recreation, clothing, car payments, furniture, appliances and other expenses. And don't forget food expenses. Since most people don't keep receipts, estimate your monthly food bills and multiply by 12.

Are you saving enough?

You should save at least 15% of your total assets. To find out if you are saving enough, multiply your total assets (line 10 at left) by 0.15. If your total liquid assets (line 3) are less than this number, you're spending too much on clothing, entertainment and other things.

Are you borrowing too heavily?

Your debts should not be more than half your assets. To find out if you are overburdened, multiply your total assets (line 10 at left) by 0.5. If your total debt (line 13) is greater than this figure, you owe too much.

How much should you save each year?

You should save at least 5% of your after-tax income each year. To find out if you are, multiply your after-tax income (line 3 at right) by 0.05. If your money left for savings and investment (line 16) is less than this amount, you're spending too much.

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