The Beginning, The Purpose

I named this blog Applied Personal Finance because just like most sciences there is theory and there is application. This blog is about applying what you know to YOUR personal finance.  You may have noticed this in your own life, but finance theories will get you NOWHERE. In order to succeed at finance you have to apply what you know and do the things you've learned. For this reason, I consider personal finance to be a behavioral science.

Now I want to start with a disclaimer, mostly because I see this disclaimer in every finance blog, article, book, etc I read. First of all, I'm not a Certified Financial Planner (CFP), nor a financial adviser, nor a fairy godmother. I do have my bachelors degree in business management, but did not specialize in finance.  I'm an everyday person who applies what I know and have found it brings me success. I'm also one of those geeks who LIKES budgets and finance. I know, right? People like me exist, but are few in number, so we have to blog about it because its hard to find people in real life to talk with about it without thinking we're crazy.  Everything I write about is my opinion marbled with the opinions of my favorite authors.

Second, investments, just like life, come with risks. Simply reading this blog will not solve your financial problems and applying mine or anyone else's advice will not necessarily guarantee success. In case you haven't noticed yet, bad things happen to good, well-meaning, prepared people. Some of the best people have the worst luck, and vice versa. However, I'd also like to congratulate you. Since you're here, I assume 1) you can read (probably write too, but let's not assume to much), 2) you have access to the internet, 3) you have some spare time on your hands (I'm not saying lots of time, I myself am supposed to be doing something else right now, but hey).  That means you have a great starting point as one of the richest people in the world.  Now we have to take what you already have and harness it to what it can be.

Now you'll notice that a lot of topics we discuss are already familiar to you. For example, spend less than you make. You read that and think, duh! But do you do it?  I say budget, you say I already knew I should be doing that! But are you?  What if I show you how I do it?  How I manage my household so that we live in the black, not the red. What if I show you how easy it is? The more you get into personal finance, the more you will find its just like church or weight loss programs, the same principles taught the same ways using different words. Yet some people swear that one diet is better than another, even though all they are really saying is burn more than you eat. Sound familiar? Oh, that's because we were just talking about making more money than you spend. However, I'd rather budget than diet any day, so let's get back to that.

Let's start by analyzing your personal situation. Now, I would recommend doing this by setting up an account with Mint.com. I love Mint. I use it for budgeting, goal setting, and keeping track of my financial health in general. However, if you prefer you could also just grab a pen and paper and label out two columns, the left one "Assets" and the right one "Liabilities". Under assets list everything you have that's of significant monetary worth and how much its worth. Under liabilities list everything that you owe and how much you owe.  For example:

Assets		Liabilities
House	$ 350,000	Mortgage	$ 300,000
Car	$ 13,500	Car loan	$ 5,000
Minivan	$ 23,000	Minivan loan	$ 15,000
Savings Account	$ 5,000	Chase Credit Card	$ 3,000
Checking account	$ 600	Sears Credit Card	$ 100
401(k)	$ 17,700	Student loan	$75,000
Total:	$ 409,800	Total:	$ 398,100

Now take your total Assets and subtract your total Liabilities. This is your Net Worth or your Owner's Equity. In this example 409,800-398,100=$11,700.

Now this is just an example. I made it up. Don't make yours up. Round to the nearest $100 or so, but you should know where you stand.  Whether you used mint.com or the good old-fashioned pen and paper, take a look at what your accountant would call your personal balance sheet. If you hired a financial planner to come consult with you, this is how they'd start. And here we did it for free. Nice! 

Now, lets take a closer look at what we've made here. Hopefully you are being completely honest here, because just like with dieting, cheating won't get you anywhere. Are you surprised by anything listed here? Do you have a positive net worth? Are you where you want to be? Does your spouse know where you stand?