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Do you know what your net worth is? Do you know how much you debt you have and when it will all be paid off? Do you how much money you need each month to account for all of your necessities?

One of the reasons that most people struggle with their finances is they are unconscious of them.  They don't know their financial situation.  Without awareness, people tend to run on unconscious autopilot.  And if you are not already financially successful, chances are you're unconscious autopilot responses aren't the best.

One wealthy entrepreneur I met earlier this year stressed the important of financial awareness to me.  He has a day-by-day graph of gross income that he updates at the end of the day.  He has a chart that, at a glance, shows him each company he has bought stock in, the number of shares owned and the total value of the shares.  He knows his total net worth almost down to the dollar: it totals over $10 million.  

So in order to improve your finances, you must take conscious control of them.  The first step to doing that is developing awareness of your situation.  With consistent awareness about your finances, it is far more likely that they will improve.  Awareness gives you power.

Why People Ignore Their Financial Situation

Before I go into how to increase your financial awareness, I want to outline some of the reasons that people tend to ignore their financial situation.  Maybe a couple of these reasons resonate with you

1. Ignorance - A lot of people simply don't know any better. They've never thought about the importance of knowing the details of their finances. Perhaps their parents never had the habit and none of their friends do either. Well after reading this article, ignorance is no longer excuse.
2. They have more important things to do - With work, school or other important activities, there simply isn't enough time to check in on finances. My response: if you don't make your finances important, you probably will have a lot of problems with them just as if you don`t make your health important, you can expect health problems down the road.
3. They are scared - This is probably the biggest reasons. When your financial life is a mess, the last you want to do is find out exactly how bad it is. That can be quite painful for some. But, the fact of the matter is that ignoring a problem doesn`t make it go away. And every time you lower your awareness, you reduce your ability to function effectively. Denial doesn`t help. What`s scarier: looking at your financial situation now or in 10 years when it`s even worse.

The Personal Balance Sheet

The first step to increasing your financial awareness is creating your personal balance sheet.  A balance sheet lists your assets and liabilities.  Your net worth is the difference between your assets and liabilities.

For the average individual, your assets will include some of the following:

• Cash
• Chequing accounts
• Savings Accounts
• Real Estate
• Stocks
• Bonds
• Other Investments

Your liabilities are your debts and include some the following:

• Credit card balances
• Car loan
• Student loan
• Mortgage payment
• Overdue bills

Take the time to create your personal balance sheet in order to get a clear overview of your financial situation. This is something you want to update regularly in order to have a summary of your financial situation at a glance.  You can find software that will do this for you or you can do it yourself relatively easily using Excel or some other spreadsheet software.

Debt Awareness

Beyond the value of your debt remaining, there is some additional information you should have about each of your debts readily available.  This includes the principal remaining, the interest rate you are being charged, the payment schedule and when the debt will be cleared.  Most people should be summarize all of this information on a one page document.

Take Inventory of Your Spending Habits

There are two assignments to this part.  First, you want to total all of your monthly recurring bills in order to get an idea of your fixed monthly expenses.  This will include car payments, cell phone bills, insurance premiums, rent or mortgage payments etc.  Once again, summarize your fixed monthly expenses in one document.  Having this document readily available will allow you to make more intelligent spending decisions in the future.

 The second assignment is to track your spending habits for an extended period of time: ideally two weeks to a month.  During this time, you don`t need to try and change anything.  The goal of this exercise is simply to increase awareness.  Carry a small notepad and pen with you wherever you go.  Whenever you make a purchase, no matter how large or small, you are going to record it.  Write down what the purchase was including the place ( coffee at Starbucks, book from Amazon .com etc), the amount of the purchase and how you paid (cash, credit, debit).  At the end of the period, total everything up and look at how you spend your money.  My guess is you will find plenty of expenses you can easily cut.

Create a Personal Finance File

Create a file (or files) for yourself that houses all the documents relating to your finances.  In this file you put all of your bank documents, insurance policies, investment documents, house title, mortgage documents etc.  For information that you have only in digital form, I recommend your print out a hard copy to place in this file.  Make sure you organize your finance file in a way that allows for quick access to any document you may need. 

My Experience

When I first underwent the experience of increasing my financial awareness, I made some instant improvements that were very simple and easy.  First, I had a significant amount of cash sitting a savings account that did not earn significant interest.  It was basically keeping up with inflation.  Since then, I`ve put that money into higher yielding investments.

Similarly, when I started tracking my spending habits, I was able to quickly eliminate or reduce expenses that weren`t particularly useful to me. I changed my cell phone plan to one that was much cheaper.  I also made my own food more often rather than eating out.  Both of these were very simple to implement and reduced my expenses without affecting quality of life.

How to Start

If you`ve been ignoring your finances for a while, doing everything I`ve outlined in this article might seem a bit daunting.  So, there are two simple ways of approaching this.  One way is to do a little bit of work each day until it is all done.  You can gather all your bank details one day, collect your monthly bills the next day etc.  After a week or so, you`ll have your full financial picture outlined.  The second option is do everything in one big sitting.  Spend a few hours, perhaps on a weekend, and just get everything done.  Now, once the initial task is done, maintaining an updated financial picture is relatively easy to do.  It just requires a few minutes each week to update the numbers.

These exercises may seem daunting if you`ve neglecting your finances.  However, it is a necessary component of mastering your money.  The more financial awareness you have, the more power you have to create financial abundance.

The next post will begin to cover the mindset for mastering money and wealth.

This post is part of a series on mastering money & wealth:

1. Intro
2. Raising Your Financial Awareness
3. Commitment and Focus
4. Wealth Mindsets
5. Clean Up Your Limiting Beliefs About Money
6. Generate a Higher Income By Creating More Value
7. 25 Ways to Create More Value
8. Create Multiple Streams of Income
9. The Key to Financial Freedom
10. Money Management