If you want to begin managing your money, hands on, begin by finding your baseline, instructs Christine Benz in 30-Minute Money Solutions: A step-by-step guide to managing your finances (www.wiley.com).

As with health, many people are so terrified about the state of their finances that they do not even want to schedule a check-up, she frets. “They'd rather not know anything about their financial picture than find out that they're just a few paycheques away from financial ruin.”

Yet, as the author argues, once such people get over the fear of the unknown and see the facts of their money situation laid out in black and white, they find that their finances are not nearly as bad as they had feared. Also, rather than worrying constantly that things could get worse, they can rest assured that they know what their problem areas are and are taking action to improve matters, she adds.

Household snapshot

Explaining that the task of finding your financial baseline, which is a lot like giving yourself a financial check-up, involves seeing where you are now in terms of your assets and liabilities as well as your spending and saving patterns, Benz concedes that the exercise may seem a little daunting. She notes, however, that it is an essential step if you want to banish worries and get on the road to improving your finances.

The starting point — akin to stepping on the scale in the doctor's office — is to draw up the net worth statement or the personal balance sheet for finding out how well you are doing. Though your net worth statement is only a snapshot of where your household's finances stand at a given point in time, because your real net worth fluctuates every day depending on the value of your assets, the author advises that this snapshot can go a long way toward helping you identify red flags, plot what your financial priorities should be, and make sure you are on track to reach your goals.

Cash flow

A chapter titled ‘See where your money goes' is about creating a personal cash-flow statement — an essential step when creating a financial plan. This statement, as Benz reasons, can help you spot trends in how you are spending your money and whether you are saving enough, make sure your spending is aligned with your priorities, and develop a budget.

“Whereas your net worth statement summarises the assets and liabilities that you've accumulated to date, your cash-flow statement captures how you use your money on an ongoing basis. The cash-flow statement shows you what cash comes into your household — through the income from your job and other sources — and what money you're spending or saving.”

An important aspect of this exercise is to identify your discretionary expenses — such as outlays on clothing, and movie rentals, which can complicate matters. Unless you track your expenses on an ongoing basis using a service such as Quicken or charge nearly everything on your credit card, you simply will not have the same paper trail that you will for your fixed expenses, the author cautions.

Emergency fund

A lesson of great significance in the book is to create an emergency fund, which can be a safety net in the case of job loss. Reiterating the conventional financial planning wisdom which holds that you should have three to six months' worth of household living expenses tucked away in your emergency fund (because it would take you that long to find a new job if you should lose yours), the author recommends building yourself an even more generous cushion, preferably nine months' to a year's worth of living expenses.

“That's particularly true if you're highly paid or work in a highly specialised field, because it's usually more difficult to replace such jobs. And of course, if you have any reason to believe that your job is in jeopardy — either because of problems in the economy at large or at your own company — you should also aim to build a larger emergency fund.”

Okay, where do you invest this emergency fund? In bank accounts and instruments with maturities of less than one year, Benz suggests. For, this is money that you could need to tap in a pinch, so you want to steer clear of higher-yielding investments that could be tough to sell or that you might have to sell at a loss if you needed to get out in a hurry, she reminds. “Instead, you need to stick with vehicles that ensure you'll be able to take out as much as you put in.”

A book worth putting money in, for the sage counsel it offers on the many facets of personal finance.