When it comes to financial planning, keep it simple, advises New York-based certified financial planner Anthony Canale.
"If I can take somebody's financial life and put it on two sheets of paper, I think that does a lot in terms of helping someone figure out where they are — which is important — and also eliminating some of the stress about wondering where they are," he said.
What's on Canale's sheets? The first is a balance sheet, the second a cash-flow statement. On the balance sheet, he advises clients to list all their assets, starting with the most liquid ones — such as cash — and then moving down to holdings, such as homes and stock portfolios. Then to list all liabilities, or debts. Lastly, subtract liabilities from assets, calculating net worth.
On the second sheet, the cash-flow statement, Canale's clients first list all income sources, such as wages and pension and Social Security benefits. Then note outflows or expenditures.
"Most people ... are always wondering where their money went rather than where it is," he said. "So I like to get things down to a very simple equation: A, your inflows, minus B, your outflows, equals C, your cash flow."
This simple way of keeping tabs on your money will do wonders for your sense of financial well-being, said Canale. "When you track your expenses, now you understand every time you make an expenditure, whether or not that expenditure is taking you further away from your goal or moving you closer to it."
