Step 1: Assess Your Finances

Money Management and Saving

Step 1: Asses Your Finances!

This sounds like an obvious step, but so many seem to neglect this very basic principle. In order to know how to get what you want, you have to know what resources you currently have. Many people do not even have the most basic idea of their income and expenses, and sometimes spend up to 120% or more of their income. They are constantly pushing themselves further into debt without even realizing it.

There are many high income earners which make substantial active incomes, yet they still seem to wonder where their money goes at the end of the week or month. They have no clue as to how much they are spending, and continue to work hard, and spend hard, only to find out at the end of the next month they still have no money left.

Find out what your current situation is by simply assessing your finances, and what you need to do to fix, or improve it. Obviously over scrutiny can lead to ‘penny-pinching’ and can cause unneeded stress, however having a good understanding of what you are spending your money on and what you already have is vital in being able to become financially free.

How Should I Go About Assessing My Finances?

Many people are unsure of where to start when they assess their finances, so we have taken the liberty of breaking this down to four simple steps:

1) Make a list of everything you spend. Everything. You can have a rough idea of what your food and electricity costs are, but obviously the more you know the more you can determine what you need to do.
2) Always over estimate your costs. This is a very important aspect that some people forget. Always leave a little room to play. There has been a large number of people that have under estimated their income and expenses and have fallen into a trap when purchasing a home, and have been left out in the cold when the times get a little tougher. Never trust the Bank to assess your finances and tell you whether you can afford a loan or not. A clear example of this was the sub-prime mortgages in America not too long ago.
3) Test and Measure. Do monthly checks of how your finances are going, and if you want, write a brief overview of how things went for the previous month and what you are going to do to improve your situation for the next month. Don’t just assess how your financial situation is going and hope things will get better. Take action towards anything that needs being done and set yourself a list of things to do for the month.
As you your finances grow and you obtain more Passive Income, you may spend less time assessing your finances as you already know how much you’re getting and you don’t have to scrutinize how much your spending because you have excess money to live your lifestyle. However in the beginning, you want to know every detail or your income and expenses.

4) Actually Assess your finances! So many people procrastinate and give the excuse “I’ll do it later” or “I don’t have enough money to assess!” but by following the same pattern you have been doing you are only going to achieve the same results you have always been getting. It does not matter how much money you have, if you can’t manage a small amount, what makes you think you can manage a larger amount? start now!
This is the most important step because it means you have to take action. Action speaks louder than words, even if you write down something, anything, you have taken the first step towards your financial future and you will soon be on your way to wealth.