215 National Financial Literacy Month - Day 8 - The Pillars of Personal Finance

<p>When it comes to pillars it is defined as firm upright support for a superstructure, for the purposes of this episode it is personal finance. Everyone has four basic components in their financial structure: assets, debts, income, and expenses. </p><p>Measuring and comparing these can help you determine the state of your finances and your current net worth. You can think of them as the vital signs of your financial circumstances. When they are all in balance and working for you, your vitals are strong. When things get off-kilter, like your liabilities being off the charts, your finances may need some CPR to set them right.</p><p>So let us delve into the four pillars of personal finance.</p><p><strong>Assets</strong>:</p><p><i>Assets </i>are items that you own and that have value that can be turned into cash when needed. Assets include cash in your <a href="http://spero.financial/personal-checking-accounts/" target="_blank">personal checking</a> or <a href="http://spero.financial/personal-savings-accounts/" target="_blank">savings account</a>, whole life insurance policies, 401k’s, investments, land, equity in your home, valuable jewelry, and even antique fine china. The key to an asset is its ability to be converted to liquid cash within a short period of time. Your vinyl record collection may be the envy of all your friends, but if you cannot convert it to liquid cash when you need it, then it cannot be considered an asset.</p><p><strong>Debts</strong>:</p><p>Debts are the accounting opposite of assets and include all accounts payable. Things like your mortgage, student loans, car loans, credit card balances, taxes owed, bills due, and money you owe others for services are all considered liabilities. In addition, accrued interest and principal on mortgages and other loans are liabilities as well. Remember, interest rates are an indicator of the cost of carrying debt, and tend to be negatively correlated with one’s credit score: the lower the credit score, the higher the interest rate.</p><p><strong>Income</str