It All Adds Up

Proverbs 27:23 states, “Be sure you know the condition of your flocks; give careful attention to your herds.” Did you know that the message behind this statement can also be applied to your specific financial situation? Here’s how; the first step in determining where you are financially is putting together a statement of net worth. In simplest terms it is a list of everything you own minus everything you owe (assets minus liabilities). It’s a snap shot, frozen in time, of every single financial decision you have ever made. It reflects your propensity to accumulate, and conversely, your propensity to borrow.

Husbands and wives rarely sit down and discuss current financial situations. If married, you and your spouse should annually prepare and review a statement of net worth. An increasing net worth means that your assets are increasing more than your debts; that’s a good thing.

“Some trust in chariots and some in horses, but we trust in the name of the Lord our God” (Psalm 20:7).

Now it is time to dig deeper into assets and your financial situation. Assets can fall under the categories of liquid or non-liquid. First, add up all of your liquid assets; these are assets that can be converted immediately into cash (ideally with little or no loss of principal). They include cash (checking, savings, CDs and money markets), marketable securities (stocks, bonds, mutual funds, etc. in non-retirement accounts), and life insurance cash values. These “liquid” assets provide the financial flexibility to meet emergencies, pay unexpected bills, make major purchases and offer you the ability to take advantage of unexpected opportunities. A minimum of three to six months of living expenses should be kept in liquid assets. This was never more apparent than during the last financial meltdown. It’s crucial really…a cornerstone in financial planning.

Second, add up all of your non-liquid assets. These are things like your home, land, business valuations, real estate investments, limited partnerships, recreation vehicles, automobiles, furniture and personal property, collectibles, retirement assets (IRAs, pensions, profit sharing, 401k, etc.), and receivables like personal loans. You’ll know an asset when you see it because it has value. Further evaluation of these assets will reveal which are productive assets (able to generate income or increase in value) and which are consumptive assets (cars, boats, clothes, etc.).

“The rich rules over the poor, and the borrower is the slave of the lender” (Proverbs 22:7). Now it is time to take a closer look at liabilities. Debt is not a sin! The use of debt is discouraged in the Bible but it does not prohibit it. It would be wise to ask yourself some hard questions before using debt and you should also pray for discernment. As Ron Blue, the founder of Kingdom Advisors, writes in his great book Master Your Money: “Debt is never the real problem; it is only symptomatic of real problems – greed, self-indulgence, impatience, fear, poor self-image, lack of self-worth, lack of self-discipline and perhaps many others.” Some of these symptoms may describe you at one point or another in your life. Ron states elsewhere that, “In general, the financial return you get from taking on debt should be greater than the cost of the debt. Taking out a loan to get a college education or launch a business usually meets this condition; using a high-interest credit card to purchase a non-earning asset like clothes or furniture does not.”

So, add up your debt. There are five kinds of debt; they are credit card debt, consumer debt (car and boat loans for instance), mortgage debt, investment debt and business debt.

Finally, it is time to calculate your net worth. Now that you have a list of your liquid assets, non-liquid assets and liabilities (debts), what’s next?

Analysis of your net worth (Net Worth = Liquid Assets + Non-liquid Assets – Liabilities) will reveal your propensity to borrow or accumulate and also your liquidity resources and amount of productive assets (both of which will be import figures in the next phase of the “where you are” financially question). This “next phase” is known as the Summary of Cash Flow (or Income Statement). Next month’s article will delve into that report, which is a measurement of your cash inflows vs. your cash outflows over a defined period of time.

Regardless of where you currently are in your financial journey it’s important to remember that the race is already won. You are victorious; your ultimate wealth is far greater than you can even imagine because of your Lord, King Jesus!

Robert Audet is the President of audet investment management, inc. which specializes in financial planning and investments.Please send questions and comments to [email protected]. To learn more about Robert, please visit his website at

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