In this episode of the Small Scale Life Podcast, Julie and I discuss taking the first steps towards Financial Freedom. You cannot start changing your course if you don’t take stock of where you are currently. The first step in this Journey towards Financial Freedom is Taking Inventory and Tracking Expenses.
As Julie and I mention in this podcast, this is an interactive process. This means that YOU, dear listener, will have some homework. Consuming our fun and exciting content is great, but you cannot change course by blindly consuming. That means you should begin Taking Inventory and Tracking Expenses!
Where We Started….
In previous episodes of the Small Scale Life Podcast, Julie and I told our story about making mistakes and doing stupid with zeros on it. This was particularly true when you looked at our mortgage and housing expenses. Both of those expenses were killing our budget and keeping us house poor. In order to break out of the box and go from Survive to Thrive, we needed to change our lifestyle, habits and, most importantly, our mindset.
Before we started to dive into the budget, we needed to get a overall picture of our net worth. Like stepping on a scale or measuring our waist and neck size in dieting, this would be one way to measure our progress. We could actually see progress as the debts (liabilities) went down and our house equity and cash in our bank accounts went up (assets).
As I mention in the podcast, Taking Inventory and Tracking Expenses gives you a high level view of what is happening. We will be diving into the details in the next Financial Freedom podcast about budgeting!
Start with Taking Inventory and Tracking Expenses
To start down this path, you need to get a clear picture of what your net worth looks like. Are you in the red or in the black? Do you know? There are two exercises that will get you started: Taking Inventory and Tracking Expenses.
The Inventory is a high level view of your assets and liabilities. Once you complete this process, you will see where you stand from a Net Worth perspective.
To assist with this, Julie and I have prepared an inventory worksheet for you, and it is available on the Small Scale Life Resources Page. Using this sheet, you will list your assets and your liabilities.
Assets are the things and stuff you OWN. This includes the following:
- Equity of your home
- Equity of land or other properties
- Investments and retirement account values
- Value of your car(s)
- Value of any toys (boats, kayaks, four wheelers, etc.)
- Household goods (antiques and home furnishings)
- Cash on hand and in accounts
Liabilities are the things you OWE. Think debts. This includes the following:
- Mortgage and home equity lines
- Credit cards
- Student loan debt
- Lines of credit
- Loans from family members
- Other debts and judgments
Remember: this is a big picture assessment. Keep it high level. You can get easily bogged down in detail here, and that would defeat the purpose of the task. You want to keep this high level and look at the big picture, not get lost in the detail! That comes….later….
Once you have your Assets and your Liabilities listed, simply subtract the Liabilities from the Assets. The resulting sum gives you an estimate of your Net Worth. Hopefully that figure is a positive number (more Assets than Liabilities). If not, don’t worry. Taking an inventory of your current financial situation is the first big step toward improving your Net Worth. Next we will work on getting you out of debt, which is a HUGE needle mover!
Once you complete Taking Inventory of your assets and liabilities, you can begin tracking ALL of your expenses. You can do this by writing it down in a notebook or using apps like mint.com. It’s up to you!
As you start this effort, remember the following three things:
- Stay the course with your spending. Don’t cheat by changing your habits or by conveniently “forgetting” about certain expenses. No cheating! You want a decent high level picture of where your money is going each day and each week. This is not a list of what your spending SHOULD look like, but what it ACTUALLY IS at present. (No “shoulding” all over yourself.)
- Be consistent. By being consistent, you will begin to see trends develop over time. Stick with this exercise for several weeks or a month. This information will feed the budgeting exercise that we will cover in the next podcast!
- Keep it simple. Use what works for you: a notebook, a spreadsheet, an app, or whatever you like. Just make sure to do it!
Help is Available!
If you are running into problems or have questions, reach out to Julie or me. You can reach us at realsmallscalelife [@] gmail [dot] com or use the Contact Us page here at Small Scale Life. Make sure to leave your e-mail so we can connect with you!
You can also join us in the Small Scale Life Facebook Group where you can interact with us and the entire community directly. There is no judgement or shame; we have a great community of like-minded folks who are very supportive.
The following links and resources are available to assist you on your Journey to Financial Freedom:
- Small Scale Life Inventory Worksheet
- Dave Ramsey Page and Podcast
- EveryDollar – Dave Ramsey Budgeting App
- Mint.com – Budgeting App
Listen to the Podcast
Listen to the podcast using the services listed below.