With most economies around the world under threat right now due to the impact of the coronavirus and necessary business closures, it’s never been more vital to get your finances in order and set yourself up as best you can for the coming years.
One part of doing this is understanding where you stand now and having a plan for the future to get where you want to be. To do this, ask yourself some critical financial questions.
What are My Assets and Liabilities?
Firstly, you need to know your current net worth so you can see exactly what position you’re in. Calculate your net worth by taking away your debts and other liabilities from the value of what you own, your assets.
Assets are things like properties, savings, shares, bonds, vehicles, business assets if self-employed, and other belongings like valuable artworks, jewelry, antiques, etc. Liabilities are any debts you owe to anyone else. This list includes property mortgages, car finance, student loans, credit card debt, personal loans, and more.
The figure you’re left with once you subtract your total liabilities from your total assets is your net worth. If you discover your accumulative debts are higher than your assets, work out how long it will take you to pay off your debts based on your current income. Also, consider what might happen if you lose your job tomorrow or if your business situation changes rapidly. Do you have a plan in place?
All of this information is important to know because it lets you exactly where you stand financially. Often people have a much lower net worth than they think, and seeing the numbers written in front of them gives them the kick they need to prioritize better financial management.
What are my Goals?
Ask yourself what your goals are, in the short term (next 12 months), medium term (next five years) and long term (ten years and beyond). Do you know what you want to achieve financially, and why this is important to you?
Get clear on what you want to be able to do over different periods. For instance, you may have goals around quitting your job and starting your own business, getting debt-free, or saving up for a vacation, property, or college tuition for your kids. You may also want to retire at a certain age with a particular level of income available to support you.
The more you know what you want to do with your life and how much money you’ll need to do that, the easier it will be to see if you’re currently on track to achieve these things or not. If the answer is no, you can then correct course ASAP and make your dreams more likely to come true.
How Could I Save More Money?
No matter what your current financial position or your goals, you likely want to save more money annually. If so, consider where you might be able to cut costs, both in small ways and large ones. It often helps to think about your spending habits and flaws.
For instance, do you have a particular weakness for designer threads or luxury cars that’s taking too much money out of your savings each year? Seeing areas where one prominent change could save you thousands of dollars per year is helpful. Often this is more about altering your money mindset than anything else. You may find that genuinely understanding your emotional triggers and what’s spurring you to spend money faster than you can save it is the key.
Also, look at ways to continue living like you do now but reducing costs along the way. Perhaps you can buy cheaper brands of goods, get better deals on your utility bills, take public transport rather than driving everywhere, or save on fees by choosing the best and most affordable way to send money online.
You may also be able to cut costs by minimizing your tax, doing more tasks yourself rather than outsourcing them, or cooking more instead of getting takeaway all the time. Also, go through your monthly expenses and see if there are any memberships you no longer use. For example, are you paying out money for gym, newspaper, magazine, music, or technology-based memberships that aren’t worthwhile?
Financial management may not be the sexiest topic in the world, and it stresses a lot of people out, but this is not enough of a reason to bury your head in the sand when it comes to your financial position. Ask yourself the questions listed above, and many others, to help you plan effectively for your future today.