Budget & Net Worth
Your household finances can be summarized in two categories, your cash flow (budget) and your balance sheet (net worth). It is important plan for and monitor these two items.
When you develop a personal budget you can monitor your income and expenses. By identifying where you are spending your hard earned dollars, you can decide if adjustments can be made to your spending habits in order that you can still enjoy life today and save for the future.
Your balance sheet or net worth statement doesn't monitor income, it simply summarizes the value of what you own and the amount of debt that you may owe on any outstanding loans or mortgages. The difference between these two is your net worth. Hopefully it is positive and hopefully it is growing.
By carefully monitoring your budget you can develop a strategy to commit as much money as possible to paying down debt and allocating an appropriate amount to savings. These actions will be reflected in positive results on your balance sheet.
Use these two tools in combination to improve your personal finances.