The first step to developing a budget is to measure your current financial situation. Knowing your current financial situation will help you determine if you are accomplishing your financial goals . If you are not accomplishing your financial goals, assessing your current financial situation will help you determine what you need to do to reach your financial goals. A personal balance sheet will help you determine where you stand financially. It will help you add up you assets and subtract your liabilities to determine your net worth .
Assets are cash and other property with a monetary value.
Liabilities are amounts owed to others. Net worth is the difference between total assets and total liabilities. Increases in net worth as a result of increased assets or decreased liabilities are evidence that you are accomplishing your financial goals . Regularly assessing your financial standing with a personal balancesheet will provide a point of reference for your money management decisions. The second step to developing a budget is to plan what direction you want your finances to take.