Reconciling Your Financial Life


A Birmingham News reader who obviously has his financial act together wrote me to discuss a topic related to the importance of tracking your finances. Here’s what he had to say:
“I wanted to bring up a topic that I feel is very important to anyone in today’s expensive world. It is called ‘financial wealth reconciliation’. A simple term that requires a great deal of attention. How do you know where you are financially today if you have not reconciled your financial past? I think so many of today’s young adults and middle aged Americans do not have the financial discipline to navigate through this materialistic world. What do you think?
Not certain of what he meant by ‘financial wealth reconciliation’, I asked him to expand on his comments.
“Personally, I reconcile all bank statements, IRA/401(k) statements, mortgage statements, automotive loan statement and credit card statements. I am able to see exactly where I stand in all of my assets/investments on a monthly basis. I also know how much interest/debt I have paid as a result of my decision to borrow money instead of paying cash i.e. mortgage interest, credit card interest, auto loan interest. I believe you should know your net worth on a monthly, quarterly, annual basis. If you have not reconciled your financial statements then you will not know where you stand today. Did you have a loss/gain? Did your net worth go up or down this month? Are you on track to hit your financial goals? All of these questions can be answered if you take the time to reconcile all of your financial statements.”
This reader continued to elaborate that for each of us, our current financial situation is a result of our past decisions. His simple formula for understanding personal finances is: Income minus (non-discretionary) expenses equals discretionary income. 
Non-discretionary expenses are things like your mortgage or rent, utilities, basic groceries and clothing, and basic insurances such as auto, homeowners, etc. Ultimately, it’s the decisions you make concerning your discretionary income that determine the future quality of your financial life. Most Americans squander their discretionary income without much thought and end up living paycheck-to-paycheck and wonder why their lives are so full of stress. 
As I reflected on his comments, I realized two things. First, he was right. The vast majority of Americans are struggling financially and it’s largely due to the collective financial decisions that they make. Secondly, and I’m guessing here, ninety-eight percent of the families do not do financial wealth reconciliation as described by this reader. Sure, some will balance their bank accounts but most will not take the time or lack the know-how to reconcile all of the financial components including bank statements, investment statements, loans as well as building and updating a personal financial statement. 
It’s vital to your financial success to both know where you are as well as where you are going. Most folks don’t know either.  Is this because it’s too hard? Is it because it’s too time consuming? I suspect the answer is both. I met with my advisor team for their suggestions for an easy-to-use system and their recommendation was unanimous and, best of all, free! Visit and you can access a robust financial management system that automatically links all your financial accounts together and automatically categorizes each of your transactions into a detailed budget. In addition, it will then build a net worth statement that links to various charts that graphically tracks your net worth as compared to your assets and liabilities. You can even do all of this through your mobile device. 
If you’ll make a commitment today to begin taking charge of your finances, you’ll soon find yourself steering to the financial destiny of your choosing!