Scott On Money

All public companies in the United States publish balance sheets every quarter. Analysts and investors use these documents as a guide to the health of the company and compare them over time to track and predict the company’s progress.

For our purposes we’ll build a very simple balance sheet.

First list your assets.  These are any investment accounts, retirement accounts, savings or checking accounts.  Add these up.

Now list your liabilities. These are home and car loans, credit cards, student debt, etc. 

We’ll throw in a twist by listing the rate (interest rate, rate of return, rate of depreciation) beside each account.

Here is an example:

Assets

Liabilities (debts)

Total -$2,500

What do we do with this?  We try to get rid of our debts that have higher rates than our investments.  If our investments have lower rates of return then that money is better spent paying down the debt.  Before we rush to do that we should see about adjusting the rates.

Can I get a better rate of return on my investments? 

Can I get a lower rate on my credit cards? 

We’ll cover these topics in another post, for now we’ll assume that this is the best we can do.

At first look we might decide to take the money from our checking, money market and E*Trade accounts and pay off most the BofA Visa with the nasty 14.5% interest rate.  This is the right idea but we want to make sure we have a cushion to pay our bills, fix our flats and make sure we avoid deadly late fees.  Let’s say we look at our bills and decide we need three thousand dollars which leaves us with about $3800 to pay down the BofA Visa.  This will save you over $150 the first year (depending on where we pull the money from). 

It is important to put your finance on paper like this (I do it monthly) to look for opportunities to reduce debt and make sure that we take advantage of the money we have. Make your money work for you!