A look at your finances.
The first thing a financial advisor will try to figure out is your financial situation. Their calculations are much more involved but what we want to know is what is your net cash flow and net worth. These are the most fundamental calculations of personal finance. You ought to know and be able to use these words properly, they are not interchangeable:
Income – What you earn. Any income you earn from your job.
Expenses – What you spend. One-time expenditures in the form of cash or checks. It's important to know that expenses are not debt because they are paid in full at the time of purchase.
Assets – The value of what you own. These are things like real estate, personal property, collectibles, stocks and bonds.
Liabilities – The amount of what you owe. Debts that are unpaid for, such as outstanding credit card bills and loans.
Net cash flow = Income – Expenses
Your net cash flow equals what you earn minus what you spend. This equation is very important, it determines if you're saving or getting into debt. If you spend less then make you're saving and if you spend more then you make you're in trouble.
Net worth = Assets – Liabilities
Your worth equals what you own minus what you owe. This equation means what your worth financially. It doesn't matter what you own just its value minus what you owe on it. So if your car is worth $5000 and you owe $2500 on it, your net worth is a positive $2500.
I'm going to make an important distinction here. A person is considered "rich" when their net cash flow is positive and "Wealthy" when their net worth is positive.
House keeping items
Before you start investing heavly you ought to ask yourself a few questions.
Do I have enough cash onhand? You ought to have a "rainy day" fund that would cover 3 to 6 months of bills. Just in case something were to happen, like a lay off.
How much debt do I have? Some credit cards could have an interest rate of over 15%. If your 401(k) is getting a return of 10% your losing 5% of your money.
What are my goals? You should set clear, measurable and realistic goals; like retirment or college savings.
When should I see a professional? If your a member of a bank that offers investment services you might be able to see them for free. You shouls see an investment advisor about once a year so they can help make sure your on track with your goals.