Financial Fitness Challenge--January: Your Net Worth

We know that personal finance often takes a backseat to other priorities in your busy life. We hear from readers that they've either made some poor decisions or put off even making decisions about important money management issues. You tell us it's too hard, too complicated, or too intimidating.

It doesn't have to be.

And that's where the Financial Fitness Challenge comes in. Month by month, we break down financial fitness into doable, meaningful, logical steps. We give you the tools you need to follow through, right here on your credit union's Web site.

What's in it for you?

You'll be master of your domain, financially speaking. You won't have to guess how things are going, you'll know when you're on top of your personal financial challenges.

Each month, the Financial Fitness Challenge brings you a mix of options:

A big picture task�say, calculating your net worth�that you can tackle to make progress on your financial fitness goals

A consumer protection or maintenance task�for example, a reminder to claim flex benefits before they expire

"Set it and forget it"�ideas to automate some financial chores so you don't have to address the same question over and over, for example, by simply using credit union direct deposit or automating mortgage payments

Challenge one

So let's get started. This month, your first challenge�if you choose to accept it�is to calculate your net worth. Why start here? It's akin to having a physical checkup before you begin an exercise program.

The first time I calculated a net-worth statement, I was preparing to apply for my first mortgage. My income was modest and I didn't even own a car. If you'd asked me I'd have said I didn't own anything.

So I was a little shocked to see the numbers rolling up: value of furniture, savings and checking accounts, personal property, vested interest in pension�hmm, not so shabby. And on the other side, no debts. Oh maybe a small one to a department store but it was payable within a few months. I remember sitting back from the exercise and thinking, hey, I really can buy a house. Pair the net-worth statement with a solid credit report and a steady job, and a lender will be happy to give me a mortgage. And so it was.

What I learned that day was the freeing power of knowing exactly where I stand financially. Now I check my net-worth statement about once a year to recharge that knowledge that I'm on the right path and making progress. If the results show otherwise, I know I have to reset my course. Believe me, it's a good feeling when you operate from facts and not fears.

And that leads to your second task this month�take a look at the small picture by tracking your spending. This will set you up for next month's big-picture challenge, so don't skip it.

Challenge two

You can't make progress on your financial goals until you know where your money is going. That means it's time to track spending for a while.

Recruit the whole family to help keep track of all expenses for at least a week or two�longer if you can manage it. You'll miss some seasonal or occasional expenses�for back-to-school needs or holidays, or car maintenance, for example�but you'll see patterns and how routine mindless spending can mean death by a thousand cuts to your budget.

You may decide to use a small notebook and record each expense. Or you may prefer to use software such as Quicken or Microsoft® Money. It might work for you to collect all receipts and bills as you pay them. Whatever your choice, be consistent and pick a system you think you'll use and not abandon.

If that sounds too taxing, try this: Collect all your receipts for several days, then review each receipt. Put a plus sign or minus sign next to each expense�plus for on-budget, within-your-goals spending, and minus for off-budget, working-against-your-goals spending. You'll see quickly how well you're staying on target. One red flag�being unable to even recall making a purchase.

Give whatever tracking exercise you use a rest for a month and then repeat it. Do you see improvements? Or have the leaks just shifted to other categories? Use credit union tools�direct deposit of your paycheck and automatic deposits into savings�to help you keep your eyes on the prize.

Basic maintenance

This month's basic maintenance task is to request a free copy of your credit report. (If you're already doing this on a regular schedule, stick to that routine and skip ours.) You're eligible for one free credit report from Equifax (800-685-1111), Experian (888-397-3742), and TransUnion (800-916-8800) each year. Spread requests for those freebies out over the year so you can keep an eye on things every few months.

Order one from Equifax in January, one from Experian in May, and one from TransUnion in September. Note: You will have to provide your Social Security number to get a copy of your credit report. This will help you monitor your reports for signs of identity theft or fraud year round. Use the phone numbers above or go to www.annualcreditreport.com--and note that this is the only site we recommend you use. Imitators will ding you for other services you may not want or try to collect info you should keep private.

Published January 9, 2007, Reviewed January 14, 2008