To figure out where you are now, you've got to budget your money and figure out your net worth.
By nature, most people don't like to budget. It's just too boring. And only about 60 percent of Americans keep a budget. But if you're deeply in debt, and living paycheck to paycheck, you need a budget.
You also should work up a budget if you're in a situation with a lot of uncertainty. If you're a seasonal worker whose income is variable, or if you're starting a new business, or if you fear that you might be laid off, you should have a budget.
Most people don't budget until they have to, or until a life-changing event. A new child, divorce, or health problems are some of the events that prompt people to budget.
My first brush with budgeting occurred when I was living in Japan. I was working for an American computer company, and I was making pretty good money.
I knew how much my rent was, but I didn't know my other expenses. All I knew was that I was saving 20 percent of my salary, and that seemed good enough for me. And I had other things to do aside from tracking every yen that I was spending.
But then my employer hit hard times. I didn't know if the company would make it.
I was worried about losing my job while living in an expensive foreign country, and I spent more than a few sleepless nights staring at the ceiling wondering what was going to happen.
But then I decided to stop wondering and start predicting what probably would happen. I turned on my computer, pulled up a spreadsheet, and started making some calculations.
I knew how much I had in the bank, I knew my rent, and I pulled out a few receipts to see what my phone, utilities and subway pass cost me. I also estimated what I was spending each day on food and other items.
Within fifteen minutes I could see that even if I was laid off the next day, I could survive for six months on my savings. I immediately felt better because even in this worst case scenario, I knew I could find a new job within six months.
When I returned to the United States and started my audio publishing business, I faced a similar situation. In the beginning funds were scarce, so I tracked where every dollar went.
I'd also recommend that you track every purchase you make for at least a month. And when I say every purchase, I mean every purchase.
You'd be amazed at how much money is spent on little things like fast food or other miscellaneous items. In my case, to help me track these little items, I'd always ask for a receipt, or I'd stuff a reminder, like a napkin from a bar, in my pocket for each purchase.
Then I'd track it all with a $40 piece of software called Quicken, and it only would take maybe two minutes each day. By the end of the month I had a good idea of where my money was going.