Most discussions of financial planning focus on steps you may want to take to achieve short- and long-term savings goals, reduce your taxes or invest more effectively. But before you take any actions it’s always a good idea to start with a clear picture of where you are financially.
Below are three steps you can take to draw this picture.
1. Estimate what your net worth is right now
Knowing exactly what you’re worth may influence certain decisions you make during the year.
If your investment accounts have significant allocations in stock funds, chances are high that they’re worth a lot more than they were at the beginning of 2024, given that the market (as measured by the S&P 500) posted a total year return of 23.1%
Don’t forget “hard” assets such as your home or other properties, since residential real estate values continue to rise, even in many “less desirable” parts of the country.
And what about your collection of fine art, jewelry or collectibles? Even if you don’t plan on selling these items soon, they’re all part of your wealth.
And don’t forget life insurance benefits, which can provide an extra layer of financial protection for your family in the event of your death.
Once you've estimated the value of your assets, subtract the value of all your outstanding debt—mortgage and home equity loan balances, credit card debt, student loans, car loans, etc.
This net figure will give you a fairly accurate estimate of your total net worth.
2. Estimate what your total monthly cashflows will be
It’s not always easy to tell if money you’re spending on living expenses or to pay off debts is being fully offset by income you receive from work, Social Security and pension benefits, or income from bank or investment accounts or retirement distributions.
To get a clearer picture, take a step back and create a budget capturing your sources of monthly income and all of your monthly expenses, including money you spend for food, clothing, and utilities as well as ongoing debt payments.
Ideally, your “inflows” should be higher than your “outflows.” If the reverse is true, you may be digging yourself into greater debt or using more of your savings to pay off your monthly deficits than you should.
That’s when you may need to make tough decisions, such as reducing everyday expenses or postponing major purchases.
3. Estimate the value of your investment “silos”
When it comes to investments, your “portfolio” is, most likely, comprised of several different kinds of accounts. Each account is a “silo” with a specific purpose. Money in each account may be invested differently, and withdrawals from each account can have varied tax consequences.
- Taxable investment accounts. If you’re under age 59½, you’re hopefully only taking withdrawals from your taxable accounts—rather than your retirement accounts—to pay for certain expenses. But you’ll pay taxes on income and capital gains generated by these accounts, so you may eventually want to look for ways to make these accounts more tax-efficient.
- Tax-deferred retirement accounts: Tax-deductible contributions to Traditional IRAs and pre-tax 401(k) plan contributions can lower your current taxable income, but you’ll end up paying taxes later when you start taking mandatory or elective distributions from these accounts.
- Tax-free Roth accounts. Contributions to Roth IRAs and Roth 401(k) accounts must be made on an after-tax basis. However, you’ll never have to pay taxes when you take distributions (and you’ll never have to take them, period, if you don’t want to).
If you don’t feel confident in conducting these estimates on your own or figuring out what to do once you’ve completed them, consider meeting with a financial planning professional.
This article was authored by David Jaeger and Jeffrey Briskin. David is a financial advisor with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. David can be reached at 508.598.1082 or djaeger@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
The S&P 500® is a market-capitalization-weighted stock market index that tracks the stock performance of about 500 of some of the largest U.S. public companies.
©2025 Canby Financial Advisors.