Part 5 of our series: Should I file for Bankruptcy, Missouri and Ilinois
Once you have added up your assets and liabilities as well as your income and expenses, you will have a much better idea of your overall financial picture – and along with this, a better idea of where you may be headed financially in the near future as well.
You now have the ability to determine two very important financial figures – your personal cash flow and your personal net worth. These figures – although they will change over time – should give you a much better picture of where you stand as far as how much more – or less – you own as versus what you owe, as well as how much income – or shortfall – you have at the end of each month.
Your Personal Cash Flow
You may have heard the term “cash flow” and thought that it only related to businesses. But the truth is that cash flow is very important for individuals as well. Cash flow is the number you get when you take all of your income and then subtract the amount of your total monthly expenses.
Therefore, cash flow is the amount that you have left – or the amount of the shortfall – at the end of each month. If you have money left over, that is a positive sign in that it means you are earning more than you are spending. If, however, you have a negative number, then it means that you are spending more than you are bringing in and some corrections will need to be made.
If there is a shortfall, you will need to determine what needs to be done in order to improve this figure. This can typically be done in one of two ways – either by reducing expenses or by making more income.
Your Personal Net Worth
A good indicator of your overall assets and debts is your net worth. You net worth can be computed by taking the value of everything that you own and then subtracting everything that you owe. In other words, your net worth is determined by taking the total amount of your assets and then subtracting the total amount of your debts.
Similar to keeping income above expenses, the best way to keep your net worth amount in the positive is by paying down your debts as well as by increasing the amount of money that you have in savings and investments.
The Bottom Line
In any case, before making the final determination of whether or not to file bankruptcy – regardless of how dire your financial circumstances may be – it is always best to consult with a qualified attorney who specializes in this area.
Because bankruptcy involves a great deal of legal terminology, it is wise to have someone on your side who knows and understands the law as it relates to bankruptcy and who also has your best interests in check.