Let's say that we want to take a short weekend vacation to San Francisco. If we were planning to drive and don't know how to get there, there is one key tool that we cannot do without: a map.

To use the map, there are two main questions that we will ask ourselves: (1) Where are we now? and (2) Where do we want to be? After answering these two questions, we can use the map to answer a third question: How will we get there? We then look at the map to find the best route to take to reach our chosen destination as soon as possible.

In the same manner, we need to apply these three big questions to our financial lives. We need to carefully analyze and reflect upon our current financial positions. Then, we should consider where we would like to see ourselves in the future. Lastly, we will create a map that tells us the best way to get to our goals.

Today, we will look at the first question. Later, we will look at the second and third questions.

Where are we now?

Although many of us are in denial about certain parts of our financial lives, there is always room for improvement. Some characteristics of our spending habits are very obvious, while others are hidden. The only way to make this work properly is to bring everything out into the open.

This is particularly true for spouses. We cannot expect our households to run smoothly if we are keeping financial information from our spouses. Whether good or bad, now is the time to mention everything so that nothing is left off of the financial map.

The critical step that will help us determine where we are now requires us to create four lists: the first two lists tell us what we OWN; the last two lists tell us what we OWE.

What do we OWN?

The first list of what we own is a list of our assets. This list includes everything that we have been able to save and/or acquire. This would include all banking accounts; personal investment savings and retirement accounts; equity in our homes and vehicles; and the resale value of some personal items.

The second list is a list of our sources of income, such as jobs or pensions. We would also include social security or disability income, as well as other sources, such as child support. Any money that is coming in would be listed here.

What do we OWE?

The first list of what we owe is a list of all debts and expenses. Every dollar spent should be accounted for, including those quick trips through the drive thru or the coffee we pick up on the way to work. We may not have actual figures for every expense, so it is OK to guess at this point. However, it would be good to start tracking spending habits so that the list can be correctly revised later.

The second list is list of irregular expenses. This list is designed to help us identify those irregular payments that we make throughout the year. Examples of this would be our home's property taxes (if not impounded) or the gifts we purchase throughout the year.

These expenses are often the budget busters that throw everything off when not planned in advance. Since they require large amounts of cash within a short period of time, an entire paycheck may disappear at once.

This list should help us avoid that problem in the near future. To help us prepare for those often-unexpected surprises, we should estimate the costs of these expenses. We then divide the total by 12 to get estimated monthly costs so that they can be included in our regular budget.

Completing these four lists can be an eye-opening experience. Although we pay our bills every month, we seldom take the time to add up all of our expenditures. When irregular expenses are included, our totals get even higher than we had realized. But the whole point of this exercise is to get a true idea of where we stand financially so that we know how to move forward to reach our goals.

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