According to Webster's Dictionary, control means "to exercise restraining or directing influence over; to have power over." Does your use of credit give you power over your finances, or do your debts have too much influence?

If you desire to exercise financial restraint and have more influence over your finances, you will need to create two pieces of financial information: a net worth statement and a spending plan.

Your net worth

A net worth statement sounds complex, but it's very simple. On one side of a piece of paper list the current value of everything you own (your assets):

• the resale value of your home, car, valuables, collectibles;
• the current value of any investments, including retirement accounts ;
• the cash value of insurance;
• anything else of financial value.

On the other side of the page list the outstanding balances of all your debts (the amount of money needed to pay off your debts). This will include the balances on:

• your mortgage
• car loan
• credit cards
• other bills

Finally, do some basic math.

Total Assets — Total Liabilities = Your Net Worth (the value of what you own minus how much you owe to others). This is a snapshot of your financial condition. More important, it is the result of every past financial decision and what you have to show for all of the money that has ever come through your hands. For most people, this snapshot is not a pretty picture.

Despite earning $1.6 million during their working years, the average net worth of Americans at age 65 is $104,000 — only about 6.5 cents out of every dollar earned. It's not how much money you make but how much you keep that counts. Therefore, you should make it your goal to increase your net worth each year by paying off debt to decrease your liabilities and putting money into assets like a house, savings account or investments. Assets should increase in value over time and increase your net worth.

Gotta have a plan

The second piece of financial information you need is a spending plan. This is simply your monthly income minus your monthly expenses. Be candid and complete in terms of what you spend each month. Your spending plan will help you see where your money is going and give you the data you need to decide where to cut expenses and increase your net worth. You'll also have a way to track where your money is going. Given that the typical worker only keeps 6.5 cents per every earned dollar, a spending plan is a necessary tool to control your money.

If you don't control your money, it will control you. To exercise restraint you need the right information. Give yourself power and influence over your financial future with a net worth statement and a monthly spending plan.

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Article copyright © 2003, Ray Linder.
All rights reserved. International copyright secured.
Used by permission.

Ray Linder is the founder and CEO of Goodstewardship.com and an internationally recognized teacher of team success and personal development. He is author of three books, including What Should I Do With My Money? — How Your Personality Affects Your Financial Behavior. Ray is an associate of Otto Kroeger Associates, the world’s leading training firm for the Myers-Briggs Type Indicator. He has over 25 years of business experience including corporate finance, investment management, fundraising and development, consulting, sales, pastoral ministry, and small business management. Ray, his wife Christine and their two daughters live in Sterling, Virginia.