Individuals interested in financial planning in San Antonio, TX need to be aware of how to calculate their liabilities as part of a comprehensive financial plan, for several reasons.
1. Calculating Your Liabilities Can Clarify Your Financial Situation
The first reason is to achieve maximum clarity on your financial situation. Liabilities are sums or obligations that you owe, whether to a financial institution, another type of company, or a person.
Liabilities are often contrasted with assets, which are things you own. Common liabilities can include credit card debt, student loan debt and/or personal loans. The balances still owed on your mortgage and car loan are also liabilities. Common assets, by contrast, are your savings, investments, retirement accounts, the equity you have in a home and/or car, and personal property.
Businesses keep balance sheets to achieve clarity on what they own and what they owe. First, they total up all their assets, to show what they own. Then, they add up all their liabilities to show what they owe. Finally, they subtract their total liabilities from their total assets. The remainder is their net worth.
Individuals should know their net worth, and calculating all your liabilities and all your assets can allow you to do that.
Knowing your net worth lets you know just what your actual assets are. It’s very easy to look around and feel wealthy if you have money in the bank, investment accounts, and retirement savings. But if you own these assets yet also have significant liabilities, you are not worth what you assume you are if you don’t calculate your liabilities. In other words, you may have an inflated sense of your total assets if you don’t also keep track of your liabilities.
2. Calculating Your Liabilities Can Help You Manage Debt
The second reason to calculate your liabilities as part of a comprehensive financial plan is to help you manage debt (which also helps you manage your assets).
In today’s world, it’s very easy to get into debt, even for high-net-worth individuals. Credit card debt, student loan debt, medical debt, personal loan debt…the list goes on and on. These types of debts are known as unsecured debts, as you don’t have any property as security behind them.
Mortgage payments and vehicle loan payments are also debt, of course. But they are known as secured debts because they are secured by the property you’re paying off. Eventually, if you do pay off secured debts, you’ll have an asset rather than a liability. At the end of your mortgage payments, you’ll own the house.
But even secured debts must be managed so you don’t have more than you can comfortably pay down every month.
Debt payments every month can sap your income. Debt payments affect your ability to save and meet your financial goals. The more you can cut down on your liabilities, the less debt service you’ll have to pay every month. If you reduce your debt payments, you can save more and put that money toward achieving your financial goals and thus, your ability to save.
A San Antonio CERTIFIED FINANCIAL PLANNER™ Professional can help you create a plan to manage debt, by reviewing your budget to see where you may be able to reduce your spending. We can also recommend debt consolidation methods if necessary, such as personal loans with more reasonable interest rates (which lowers your monthly payment) or transferring balances to a lower interest rate credit card.
3. Knowing Your Liabilities Can Help You Budget
A key part of a comprehensive financial plan is a budget. Simply put, a budget is an itemization of your income and expenses every month, by category. Developing a budget is essential to make sure that your expenses don’t outrun your income – because if they do, you are incurring more liabilities.
Additionally, your monthly budget can help you identify areas in which you can cut down your liabilities or need to increase your income, allowing you to work toward a better financial life.
4. Knowing Your Liabilities Helps You Be a Better Steward of Your Money
At Pax Financial Group, we link religious values with our financial life. We believe that to honor God, we should manage our financial resources wisely and responsibly, living within our means to ultimately benefit from financial abundance. Calculating your liabilities along with your assets enables you to do that. We specialize in helping people live their financial lives in accordance with their values, and knowing your liabilities is an important part of that.
5. How to Calculate Your Liabilities
People can calculate their liabilities just as businesses do.
First, sit down and total up all your unsecured debt, such as credit card debt, personal loan debt (from financial institutions, companies, or people), student loan debt, and any other debts.
Second, sit down and total up all your secured debt – debt you are paying for types of property or assets, but don’t yet have paid off, such as mortgages, car loans, and more.
Third, total up any other debts or obligations you may have. Anything on which you are obligated to pay monthly until something is paid off or released is a debt. Car lease payments for which you have a contract obligation, for example, are debts.
Fourth, add all these together and you will have your total liabilities.
Contact PAX Financial Group, Financial Advisors in San Antonio, TX
A financial advisor at PAX Financial Group can help you design a comprehensive financial plan. A comprehensive financial plan includes setting financial goals, creating and working within a budget, investing for your goals, saving for retirement, managing risk through insurance and other methods, tax planning, and estate planning for your family and descendants. We are fiduciary financial advisors who can help you with every aspect of a comprehensive financial plan.
