Assets & Liabilities: What’s Your Current Financial Reality?


When it comes to money, what we don’t know can hurt us.

I’ve seen this truth play out time and again when people tell me they want to get serious about their finances.

They want to invest.

They want to make plans for the future.

“Great,” I’ll say, “so what can you tell me about your current finances?”

The most common response?

A blank stare.

How do you get there

I’m not surprised

I know from personal experience.

Sometimes we just don’t want to know.

As soon as we start listing our current assets and liabilities, we come face to face with both our good and bad financial decisions.

Maybe we’ve done a great job of saving money every month, but we’ve also had a credit card balance for over a year.

We need to know both the good and the bad, otherwise, we can’t plan for the future.

Getting a handle on our current reality starts with something simple: a personal balance sheet.

To start, grab a piece of blank paper

Draw a line down the middle.

Write “Assets” on the left, “Liabilities” on the right.

Then, make a list.

Assets are anything we own free and clear.

Liabilities are any debts we owe.

On the asset side, list things like savings accounts, superannuation, and the value of a home.

On the liabilities side, list things like credit card debt, a mortgage balance, and any other loans.

For this process to work, we need exact numbers, especially for our liabilities.

Be prepared to call credit card companies and banks if needed to get this information.

Again, not knowing these numbers can hurt us

One woman who came to me for help admitted that she’d taken out a student loan for $6,000, but she’d ignored it for decades.

When she finally called, the total owed had snowballed to $34,000.

We worked out a plan to deal with the debt, but ignoring this liability came at a big cost.

Of course, the personal balance sheet may also reveal we’re better off than we think.

That’s a good thing.

We may have saved more and have less debt that we assumed.

Once we have all the numbers, add them up. Money to make money

Then, subtract all the liabilities from the assets.

This number equals our net worth and our current reality.

This process seems simple enough.

However, if we keep avoiding or skipping this step, we’ll continue to have a difficult time figuring out where we want to go, let alone how to get there.

This column originally appeared in the New York Times


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Carl Richards is a Certified Financial Planner and a columnist for the New York Times, Morningstar magazine and Yahoo Finance. He is author of 2 books, The Behavior Gap & The One-Page Financial Plan. Carl lives with his family in Park City, Utah. You can find his work and sign up for his newsletter (which has an international audience) at

'Assets & Liabilities: What’s Your Current Financial Reality?' have 2 comments

    Avatar for Carl Richards

    January 17, 2018 Geoff Klem

    This is a really worthwhile piece of advice from Carl.
    Simply knowing where you are at financially is a great truth
    and this foundation allows you to be able to move forwards


      January 18, 2018 Michael Yardney

      You’re right Geoff – how can you start a journey to financial freedom if you don’t know where your starting point is


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