Financial matters can be quite overwhelming. There are so many resources out there and many experts giving great advice, but when it really comes down to it, most individuals are at a loss on how take all the information out there and apply it to their own unique situation. Knowing where to begin especially for those who have spent several years passively managing their financial lives can be quite challenging. Whatever your reason is for deciding to become an active manager of your financial life, let me say congratulations that you are ‘here’ now. Before you start getting overwhelmed by all the information out there, you need to take the following basic steps to help you become AWARE of your present reality. It is only after establishing your reality that you can know if there are areas of improvement you need to work on or gains, which you can consolidate.
Know what you own and owe: However little or much, write down those things you own and can resell if you need some cash. I am not talking about items like your shoes and designer clothes. I mean things like your home, bank accounts, stocks, cars and expensive jewelry. Can you go a step further and estimate their current market value? On the same note pad, write down who you owe and how much you owe them. When are these obligations due? Now subtract the value of what you own from you owe. Don’t get discouraged if you presently owe more than you owe, it is not the worst situation in the world, it can be corrected no matter how old you are. Don’t relax if you own more than you owe, things can change quickly if you don’t proactively manage your financial life.
How much do you earn, spend and save: For this exercise, get your last three months paycheck, bank and credit card statements. Now write down how much you earn per month (gross paycheck), write down (and deduct) the taxes and other deductions from your paycheck, the result if your net pay. Now list all the payments you have made for yourself and others under your care (e.g. your children), be sure to include the items you bought on credit as well, group them into the following categories:
- Car loan, savings
- Other loans/debts (e.g. student loans)
- Food and groceries
- Gas and transportation costs (e.g. car insurance, bus/train tickets)
- Home utility bills (e.g. water, heat and electricity)
- Communication and entertainment (cable, internet, telephone)
- Shopping (e.g. toys, hair, spa, clothes, shoes, jewelry etc)
- Vacation (including day trips and cost of dining out)
- Charity (including gifts)
- Education costs
- Other expenses
Now ask yourself these questions:
- Do I pay too much taxes? Perhaps you ned to talk to a tax expert if you find that 40% of your gross paycheck is going to the government.
- How does your monthly expense compare to your monthly income? Do you spend more than you earn every month? If this exercise shows that you are cutting your coat according to your size and not the available material, you need to take a step back and make changes. We will discuss cost cutting techniques in the near future by God’s grace, so stay tuned.
- What expense category do you spend the most on? Writing down where your money goes makes it very easy to make changes if needed. If you find that half of your income is going to the retail outlets, perhaps you need to check yourself. Or if you find yourself paying huge out-of-pocket costs for medical services, you may need to find alternatives to your insurance plan or sign up for a health savings account.
- What proportion of your monthly gross income do you save for tomorrow? I hear a lot of financial experts put percentages on how much we need to save, I promise to address this in future coaching sessions on this page God willing, but the question you need to ask yourself now is: “how much, if any do i save every month?”
I hope you are more aware of your financial reality after doing this exercise. Please don’t stop now, make this an ongoing habit. Check back with me in the coming days because I will be talking about easy ways to save, cut costs, set goals, build budgets and all other good stuff. I hope to see you soon!
Keep living your best financial life…..
One thought on “Living my best financial life: where should I start from?”
The exercise was very well done by me.
I figured out that, I wasn’t saving much. Then, I recheck my past doings & WOW!
I have done it. I am now saving 25% of my earnings.
By seeing this, my financial coach also told me to make sufficient cash for the future.
Thanks. The article was very helpful.