Week 2 Discussion
• How will you determine if you are in the position of financial take on my debt?
You need to create a budget and make sure that your expenses are not exceeding your
income. If you are doing ok now, you need to make sure that the addition of the new debt
will not make you expenses exceed your income. According to an article I found online,
you want to make sure your front-end ratio stays at or below 28% and your back-end
ratio stays at or below 36%. The article states, “Your front-end ratio is your total monthly
housing cost divided by your gross monthly income. The back-end ratio is the total of all
of your debts and your housing costs divided by your gross monthly income.” (Ventura &
Reed, 2007)
• What items/documents will you review to determine your financial position?
You will want to review all your personal financial documents. These include documents
such as pay stubs, bank statements, credit card statements, and your budget. Other
financial documents can include vehicle titles, tax forms, contracts, certificates of
deposit, leases, mortgage loan papers, and stock certificates.
• What tools will you use to analyze and understand your financial position?
Just as with a business, you want to use financial statements. You can look at your
personal cash flow statement or your personal balance sheet. The cash flow statement
shows the cash inflow and outflow, including salary, savings account interest, investment
dividends, rent, utilities, groceries, gas, and entertainment. A balance sheet is a way to
look at your total wealth for a specific period. As stated in an article online, “It is a
summary of your assets (what you own), your liabilities (what you owe), and your net
worth (assets minus liabilities).” (Morah, Retrieved July 2018)