Do you have control of your finances?

As I talk to family, friends and prospective clients, I often hear about financial challenges. Most people have financial challenges. If not, they would almost always like to be in a better place when it comes to their financial well-being. I try to remind people that the challenges aren't always the problem. The problem is often the fact that people don't have a clear picture of their financial situation. Many people aren't even aware of what parts of their financial lives they are in control of. I'd like to review a few areas and offer some suggestions.

A good starting point is a net worth statement and a income statement. In plain English, a net worth statement is a listing off all positive and negative account balances in order to come up with the net positive or negative "net worth." An income statement is a listing of all income and expenses over a chosen period of time. Once you have pulled together a basic summary of where you are, you can start to look at what you can control to improve your financial situation.

Bank Accounts - Are you paying unnecessary fees or missing out on earning interest? Do you have adequate savings?

Investments - Are you taking inappropriate risks considering your stage in life? Do you know what you are investing in and why you are doing it? Are your investments diversified? Have you had a professional assessment of your investments?

Real Estate - Do you have the lowest rate available on your mortgage? Is your mortgage balance appropriate? Are you maintaining your home and only spending money on it in "smart" ways?

Credit Cards - Do you pay more interest and fees than is necessary? Do you even need to use credit cards to begin with? Can you reduce the balances that are incurring interest?

Other Loans - Borrowing money for purchases should be well thought out and should not be a frequent behavior.

Salary - Are you living up to your potential at work? Have you evaluated your career path and what type of spending that supports over the long run?

Monthly Expenses - Which of these are necessities and which of these are luxuries? Can you really afford all the luxuries?

Taxes - Do you take advantage of all available deductions? Do you consider the tax impact of your large financial decisions?

The Bottom Line - Are you living within your means? Is more coming in than is going out?

Gaining control of your finances takes work, just like keeping your body healthy, keeping your marriage strong and teaching your children correct principles. Like all of these things, increased financial control will expand your options in life and lead to greater peace of mind. We are all faced with challenges we can't control, but we also have the ability to take charge and chart the path we want to follow in life.

Is Real Estate Investing a Good Idea?

Real estate is something that will always be there. It is the ground we live on or the structure we work and live in. For this reason, it is something of value. The population of the earth isn't decreasing and the prime places to live and work aren't increasing. This seems like an obvious formula for success as an investment. Many people have made fortunes investing in real estate, but the average investor doesn't always have this experience. Why is this and what has recent history taught us about investing in real estate?

Many Americans are homeowners and, as a result, they became aware of the significant increases in home prices of recent years. This seemed to be a ride that many people were taking to easy prosperity. No one wanted to be left behind so more and more people jumped on for the ride. Like any speculative bubble, the residential real estate market has come crashing down and many novice investors have suffered with the crash. Many people are now avoiding real estate of any form and regretting their decision to invest in this market. Is this the best thing to do?

Your home is often your most valuable asset. Not only does it provide a place to live, but it allows for tax breaks and a forced savings plan (through paying down a mortgage and building equity over time). As a result, buying a home within ones means is not a bad decision. The idea of your home as the primary means to build wealth does not always make sense, though. Over the past twenty years (which included the housing bubble) home prices have averaged gains of just 3.6% a year. Stocks, on the other hand, have averaged gains of 8.4% per year (including the recent downtown in the stock market).

I'm not saying there isn't a place for real estate in a diversified investment portfolio. There are professional real estate managers and ways to invest in commercial real estate in a prudent, diversified manner. My experience and history have taught me that a home should be primarily a home and investing in real estate beyond that should be done carefully, prudently and with a long-term, diversified approach, just like the rest of the investment portfolio.