Any building requires a solid foundation or it will crumble. Financial wealth also requires a good foundation that consists of four components: your financial baseline; your financial freedom day; managing your lifestyle cycles; and, building a wealth cycle foundation.

Your Financial Baseline

Your financial baseline is an honest assessment of your current financial position, including your current income, expenses, assets and liabilities. For many people locating all the information necessary to carry out this task requires intense organization of their financial filing cabinets. Hence, there are three critical steps to completing your financial baseline:

1. Organize your financial filing cabinet
2. Complete your personal and business Profit and Loss (P&L) statements
3. Complete your  personal Balance Sheet

Creating your financial baseline can be an emotionally draining, even harrowing experience. Your financial baseline is a reflection of your past financial awareness and conditioning. Once known, you can change course direction and begin creating the wealth and life you really want.

First, you need to organize what I call your "financial filing cabinet." Most people have a lot of paperwork and clutter around their filing cabinet. You need to create some sense and logic to the flow of your financial information. Create good records of all your legal and personal documents, financial information, banking records, income tax records, and even housing records.

Second, complete a personal and business profit and loss statement, also known as an income statement. Here you list every source of income and every expense. The bottom line is your net income (or loss) each month.

Third, complete a personal balance sheet, which is a list of everything you own on one side (assets), and a list of everything you owe on the other (liabilities). List the equity in your home on the asset side and your mortgage on the liability. The difference between the two is your net worth.

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