Making the Most of Money: Step 1: Take a Step Back

So you want to get a handle on your personal finances. Great! It's never too late to start. Whether you are a recent graduate or have been out of school for 20 years, the fundamentals are the same.

Before you can make any changes, you need to understand where you stand.

First: Make a list.
Grab a pencil and paper (or your computer) and start writing. Write down the name of every single account that is linked to your name. Here is a list of common account types to get you started:

-bank accounts (savings/checking)
-credit cards
-student loans
-rental agreements/mortgages
-auto loans
-auto insurance
-investment accounts/retirement savings
-cell phone
-utilities (electric, water, gas, etc)
-connectivity (internet, cable, phone)
-any other financial contracts

Great! Now you have a list of all of your financial obligations and connections. Generally, these accounts will fall under two categories:

Assets - things of value that can readily converted into cash
Liabilities - an obligation to someone else in exchange for services or objects

Next: Label your accounts.
Next to each of your accounts that you listed in Step 1, mark an "L" or an "A". (Hint: Mortgages are Liabilities, not Assets - you owe someone money in exchange for an object) Chances are, you'll have a lot of L's to start with. Don't worry! With time, and careful planning, those L's will eventually disappear, and you'll create many more A's to add to your list.

The goal throughout all your financial planning is to decrease your liabilities (credit card debt, student loans, etc) and increase your assets (cash, investments, etc). This WILL NOT happen overnight. Improving your finances takes time and effort - which is why so many people don't like doing it. You can't stuff your bills under the mattress and hope they disappear. Trust me, they don't.

But this effort pays off! If you can improve your financial situation now, it will pay off in the long run. If you have a solid credit history, you can get better rates on loans and credit cards and save thousands of dollars in interest over the life of the loan. That's thousands of dollars extra in your pocket - if you have a good credit history.

I've spent the last year reading everything I can get my hands on about making the most of my money. Here's the difference between my list last year, and my list this year.