How to Rebuild Your Finances

"The man of character finds an especial attractiveness in difficulty since it is only by coming to grips with difficulty that he can realize his potentialities."
- Charles de Gaulle

Divorce. Death of a spouse. Unemployment. Illness.

There could be a myriad of reasons that people find themselves rebuilding their finances. Most families are one or two paychecks away from being broke and in danger of financial ruin.

When a consumer finds themselves in this unenviable position, there are several steps that can be taken to quickly get back on sound financial ground.

First, a net worth statement is necessary to get a true picture of your finances. It is the most basic financial tool which is used to help make financial decisions and to measure progress. The calculations that are needed to determine your net worth is to first add all of your assets. These include your home value with its furnishings, automobile, balances in your bank, investment, retirement and savings accounts and other personal property.

Next determine your liabilities. This includes the outstanding balances on your mortgage and home equity loans, credit cards, auto loans and any other financial obligations. Subtract your total liabilities from your total assets. This figure is your family's net worth. It is highly suggested that you calculate your net worth at least once every year.

After you have figured your family's net worth, your next step should be to establish a budget. Determine all sources of income including salaries, social security or pension benefits, child support, alimony and interest earned. Next, calculate all fixed and flexible expenses. A fixed expense is the same every month, such as rent or mortgage and insurance payments.

Flexible expenses are food, dining out and recreational expenses. A lot of people have expenses that exceed their income and unfortunately use credit cards to pay off living expenses. This is a very dangerous practice and if it MUST be done, it should only be done short term.