Imagine that you’re planning a road trip to California. How would you get there? When would you leave? What time would you arrive at your destination?

Your answers to these questions will depend on the answer to another question: where are you right now?

As with traveling, financial goals express a desire to get from point A to point B. But before you make a plan to get to point B, you first need to establish where point A is. In other words: before you make a plan to reach your goals, review your finances and your spending and saving habits as well.

Here are three things financial tools that can help you establish your starting point:

Net worth statement

A net worth statement is the total of all your assets (checking accounts, savings accounts, investments, etc.) minus your debts (credit card debt, student loans, home mortgage, etc.). This will give you a summary of your current finances.

It’s important to calculate a net worth statement regularly (at least once a year) to get a snapshot of your financial state — particularly as you progress towards your goals.

Cash flow report

A cash flow report shows your income versus your expenses and spending over a period of time. A positive cash flow means you are making more money than you are spending; a negative cash flow means you are spending more money than you are making.

To create a cash flow report, choose a period of time to track the money you make and the money you spend. Include every little bit of income and every single expense: morning coffee purchases, utility bills, rent, etc.

If you have a negative cash flow or, a cash flow report will help you determine if your income is too low or if you are spending too much money.

Debt-to-income ratio (DTIR)

Your debt-to-income ratio is calculated by dividing your monthly debt payments divided by your gross monthly income. This gives you the percentage of your income that is claimed by debt.

Many lenders use your DTIR to help them determine if they will lend you money and at what rate. If your DTIR is 30% or less, they are more likely to lend you money at a decent interest rate.

If you are planning on borrowing money for a mortgage, for example, calculating your DTIR can help you determine if it’s safe to take on more debt without first reducing your current debt.

Also, your debt-to-income ratio can show you just how much your debt is costing you. The individual payments may seem affordable, but if your DTIR reveals that debt is consuming half of your gross income, it can explain some or perhaps even all of your financial troubles.

So where are you now?

Once you have your financial goal, you have create plan to get there. But before that, make sure you know where you are coming from.

Covenant Trust Company is a financial services company owned by the Evangelical Covenant Church and its affiliates. Our services are available to anyone in need of asset management, retirement planning, legacy planning, gift planning, or trust services. In addition, we seek opportunities to encourage and promote healthy financial habits, and keep a personal finance blog at


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