The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will.
– Vince Lombardi
Financial management is the cornerstone of achieving financial independence. It can determine the lifestyle you enjoy today and the lifestyle you will enjoy in retirement. Effectively managing your wealth will allow you to take control of your finances so that you can achieve the goals you have.
The two most important financial management documents you need are a Net Worth Statement and a Cash Flow Statement (also known as a budget). Together, they will help you understand how much you have, where it comes from, and where it’s going.
To assist in the preparation of your Net Worth and Cash Flow Statements, you will need an inventory of all your assets and liabilities, along with an inventory of your income, expenses, and savings. This information will form the basis of many strategies used to fill any gaps in your financial position.
RECORD TYPE: Cash Flow Statement
Your Cash Flow Statement should be updated each year or whenever there is a material change to your income or expenses. Maintaining multiple years of cash flow statements will provide greater insight into how your income and expenses change over time.
Suggested Action: Include a copy of your Cash Flow Statement each year or whenever it is updated.
RECORD TYPE: Net Worth Statement
Your Net Worth Statement should be updated each year or whenever there is a material change in your assets or liabilities. Maintaining multiple years of net worth statements will provide greater insight into how your assets and liabilities change over time.
Suggested Action: Include a copy of your Net Worth Statement each year or whenever it is updated.
RECORD TYPE: Personal Property
It is a good financial practice to maintain records for all larger personal property purchases, such as vehicles, electronics, appliances, and furnishings. Keeping good records will help you get your asking price when you decide to sell personal property in the future.
Suggested Action: Include a copy of all receipts and warranties for personal property purchases, including all maintenance history.
RECORD TYPE: Real Estate
It is important to maintain copies of all real estate transactions, especially for any money you spend on renovations and upgrades. This may help increase the market value when you sell the property and reduce the capital gains tax payable on a cottage or rental property.
Suggested Action: Include a copy of all purchase agreements, land titles, mortgage documents, property tax assessments, and receipts for major improvements.
RECORD TYPE: Liabilities
Taking charge of your debt and making plans to reduce the cost of credit will free up cash flow that can be used to achieve other goals you may have to enrich your life and grow your wealth.
Suggested Action: Include copies of statements for any lines of credit, loans, credit cards, and other debt obligations you may have.
RECORD TYPE: Other Assets
Your other assets include any asset that is not accounted for elsewhere, and include personal loan agreements to family and friends, timeshares, jewelry, art, and collectibles.
Suggested Action: Include documentation for your other assets.