Surviving The City | What is Your Financial Picture?

What is your financial picture? First, we need to understand what a financial picture means. Simply put, a financial picture is a breakdown or illustration of all your assets and liabilities so you can calculate your net worth, analyze your portfolio (identify any hidden investment fees), and plan for your future. More on this later.

Success!

If you are a younger millennial living in an expensive city, your financial picture is probably the last thing on your mind. You are more focused on paying rent and loans, and figuring out how to pay for a night out or weekend escape. Quick side note, can anyone guess which expensive city is shown at the top of the page? Answer in the comments below!

Budgeting

Budgeting can be hard these days. If you live in an expensive city, you spend money fast. Where is your money going? Technology allows us to sign up for a wide variety of services, programs, and shipments that are automatically linked to one, or many, credit cards and bank accounts. Often times we lose track of what we are spending money on each month. Netflix, Hulu, Amazon Prime, iTunes, cloud storage back up. Car insurance, ride sharing, smart TV apps, Blue Apron. Automatic reloading of your public transit card, PayPal, food delivery services, etc.

We also have elevated city living expenses. Insanely high rents, crippling student loans, car payments. Groceries, utilities, phone bill, etc. Cash flow tracking can get very overwhelming. Often times, it blinds you from the big picture, your financial picture.

Making sense of your cash flow is important, yes, but equally important is to take a step back and understand your current financial picture. Like in poker, you want to see all the cards on the table so you can set a strategy for your future. What are your assets, and what are your liabilities? Wait, what the heck are assets and liabilities?

Assets (you probably have more than you think)

An asset is a resource with economic value that you own or control that could be converted into cash (at some point). To simplify, think of your assets as cash, investments, real estate (property), and personal property.

Cash: everything in your savings and checking account, money market accounts, physical dolla dolla bills, and treasury bills.

Real Property: basically your house and land it’s attached to (if you own).

Personal property: everything that you own that’s not real property such as engagement rings boats, collectibles (your mothers antique dresser), etc.

Investments: retirement plans (IRA, 401(k), 403(b)), pensions, mutual funds, stocks and other investments, cash value of your life insurance policy, bonds, annuities (money paid to you each year–you probably aren’t struggling to survive in expensive cities if you have this).

Assets as a whole can be broken into two categories based on the ease of turning them into ‘cash money’. Liquid and illiquid assets. I always get these confused when a finance person asks me about my liquid net worth vs. illiquid net worth.

A liquid asset is one that you can turn into ‘cash money’ fast, with little effect on the price received. This includes all your investments (see above), bonds, and of course, your cash.

Illiquid assets cannot be converted into cash quickly (and by doing so may result in a loss in value) This includes houses, antiques, collectible, etc. Though, in expensive cities (especially the Bay Area), the real estate market is so hot that people are paying cash for purchases with very short closing times!

Liabilities

A liability is a financial debt or obligation. Money you borrowed that needs to be paid back. Think of this as all your credit card debts, student loans, auto loans, phone repayment plans, and if your are killing it, your mortgages.

Net Worth

To calculate your net worth, you simply subtract your liabilities from your assets. If you are living in an expensive city with a large amount of student debt you will very likely have a negative net worth! But that’s ok. It’s important to recognize this and make a goal to pay off these loans (very important to do!). My net worth was negative $80,000 when I got out of school. I was so shocked by this realization that I got serious about paying off my student loans. Read how I paid off my student loans in 3 years!

So, what is your financial picture?

Congratulations for making it this far in the post! Here, we are going to figure out how to visualize your financial picture. Remember that your financial picture is a breakdown or illustration of all your assets and liabilities. Visualizing this allows you to calculate your net worth, analyze your portfolio (identify any hidden investment fees), and plan for your future. Hands down the best online, financial picture tool available to us is Personal Capital. It is 100% FREE, and easy to use. If you don’t already have an account click this link and sign up today!

Personal Capital is essentially a dashboard to help visualize your financial picture. It will illustrate your assets and liabilities, and allow you to dive into each of the individual assets/liabilities, as well help you budget! The dashboards are easy to use and the tools to analyze your spending and investments are great.

Again, if you are just starting out after school, and have crippling student loan debt, you will likely have a negative net worth. This is OK. The first step to success is identifying issues, and then making a solid plan of attack.