“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”

-Benjamin Franklin

YOU HAVE TO start somewhere. The problem is that most people have no idea where they are when it comes to money and debt. Before you can create a plan to get out of debt and build a wealthy life, you have to determine exactly where you are and identify some of the things that got you into that bad position in the first place. This step can be a painful one, as most people don’t really know how deep they are in debt until they see the actual number on paper. While it may be discouraging to see the real magnitude of your problem, the activity of gathering and listing this information is a necessary part of the process you must go through if you really want to change your behavior and get on the path to a debt-free and wealthy life.

Use the following form to conduct a personal financial inventory. Don’t fudge on the numbers or leave anything off. We want to eliminate all your debt, so we need to know exactly what debts and expenses you have. Get out your most recent statements from all your credit cards and other monthly obligations. Most will have the current balance on the statement. You may need to call the lender to get the balance for your mortgage or a car loan if it’s not on the statement. The point is that you need to use real numbers and not just estimates. This may take some time to complete accurately, but don’t skip this step because this financial inventory will become the foundation for your debt elimination plan that you will create in chapter 6.

Screen Shot 2015-02-16 at 4.04.17 PM

Some regular expenses, like insurance premiums for example, may not going be paid every month. Most of those payments are made on a quarterly or semi-annual basis. To make this exercise more meaningful, you should calculate all of those non-monthly expenses and break them down to a monthly amount. If you forget to include these types of expenses in this exercise, you’re going to have a big problem the first time one of those payments comes due and impacts your monthly cash flow.

Now you should have a better picture of just how much money you make and how much debt you have. With this, you should be able to start seeing where your money is coming from and going to. You’ll probably be able to spot some very obvious problem areas that need immediate attention.

A few summers ago, my oldest son was washing his motorcycle in the front yard of our home. When he finished, he put the hose back and turned off the water. Or at least he though he turned off the water. A few days later, we went down to the basement and noticed that the carpet was soaking wet in one of the bedrooms. When we looked for the source outside the window of that room, we discovered the dripping hose. Not much water was coming out. It was hardly noticeable, but over a few days left uncontrolled, it leaked enough water to flood our basement and create a lot of damage that was expensive to clean up.

One major benefit of the personal financial inventory is that, as you compare where your money is coming from with where it’s going, you can begin to focus your attention on the biggest leaks in your financial world and then quickly plug them.

A little water leak can cause a lot of damage. In the same way, without proper controls, a little money leak can cause a lot of damage and slow your progress toward debt freedom.  Money, like water, can be a very destructive force if it’s not controlled.  This chapter is designed to help you identify the leaks in your personal finances. Everyone has a few leaks, and we want to find them and plug them as quickly as possible.

If you’re like many of the people who complete this simple exercise honestly, you may discover several hundred dollars that are slipping through the cracks in your personal financial plan. When we get to the chapter on paying off your debts, you’ll see how critical that extra $200-300 can be in eliminating your debts faster than you ever thought possible.

Keep in mind that the goal of the 60-Day Money Miracle program is to get you out of debt using just your current income and resources. In order to make the program work, we need to identify where every dollar is coming from and going to.

Some of the categories on your personal financial inventory might be hard to determine. If you spend cash, you may not have a record of everything you’re spending money on. To get an accurate total for each expense category, you need to keep track of your cash expenditures as well as your checks and credit and debit card charges. Every single penny must be accounted for. So starting today I want you to begin tracking all of your expenditures for the next 30 days or at least a week. You may think this is silly, but it’s an important part of learning to make wise money decisions. In order to find the extra money you will need to pay off your debts faster, we need to know where the money is going right now. Take this seriously and it will be a great learning experience that will help you accelerate your debt elimination.

The easiest way to do this is to carry a small notepad with you for the next 30 days and write down every time you spend any money. You need to record how much you spent and what you spent it on.

Once you complete the 30 days of tracking your cash spending habits, you need to categorize all your expenses into some basic categories like food, clothing, housing, transportation and entertainment to help you see the leaks and identify areas that need immediate attention. This will help you begin to prioritize your expenses to bring them back into balance with your income, and also create a realistic budget to guide you through the rest of the steps outlined in this book.

Use the list of categories on the personal financial inventory report to organize your expenditures. There are a few extra lines so you can add more detail for your individual situation if necessary.

I’ve resourced some helpful tools that you can use to complete this step. In the spirit of helping you progress towards your goal of debt freedom, I’ve made the basic tools available to anyone for free. Some of the tools have more robust versions that are also available for a small charge. You decide what works best for you and fits your budget and needs.  You can check out the tools I recommend on my website at rossjardine.com.

At the end of your 30-day tracking period, you’ll have a much clearer idea of where all your money goes. Be prepared for a few surprises. I can remember my shock at discovering just how much I was spending on donuts and soda, the breakfast of champions. Not only did this exercise help me identify a big leak in my own personal finances, it helped me see an area in my life that could be improved to help me get more physically fit as well.

Who knows what benefits you’ll find as you begin to plug your own leaks.