Step 1: Know where you stand right now!
Following the reflection in the last issue on our first financial lessons and the importance of education in this area, this issue takes a more practical, action-oriented approach. If before we delved into the origins of our beliefs and attitudes towards money, now it is time to take a step further to shape a more solid future. We now focus on the present, the here and now, a fundamental first step on a successful financial journey.
In this crucial step towards becoming a finance expert, it is essential to be clear about your current financial situation. This exercise can stir up different emotions, and it is important to be open to facing them and understanding their origins. Here are some suggestions on what to look at:
Monthly income: Calculate and record how much you earn per month from all sources of income, including salaries, investment income, passive income and so on. It is important to have a clear understanding of the money that comes into your account regularly.
Monthly expenses: Go through your bank statements and monthly expense records to work out how much you spend on average per month, and write it down. Divide your expenses into two categories: needs (such as housing, transport, food) and wants (such as entertainment, travel and unnecessary purchases, etc.) This can help you identify areas where you can cut unnecessary spending.
Debts: Identify all your debts, including loans, student loans, mortgages, credit cards and other financial obligations. Write down the balance owed and the interest rates associated with each.
Savings and investments: List all your financial assets, such as savings accounts, investments in shares, treasury bonds and mutual funds.
Calculate the total value of these investments.
Retirement and saving for the future: Assess your retirement savings plans, such as an individual savings account. Determine whether you are contributing adequately to your retirement and whether your investments are aligned with your long-term goals.
Physical assets and net worth: Besides savings and financial investments, assess the value of your physical assets, such as property, vehicles and other valuables. Calculate your net worth by subtracting your total debts from the total value of your assets. This can help you get a more holistic view of your financial situation.
Emotions and attitudes towards money: Reflect on your emotions and attitudes towards money. Ask yourself what emotions drive you to spend money and whether your financial mindset is positive or negative.
Comparing expenses and income: Compare your monthly expenses with your total monthly income. If your expenses are consistently higher than your income, this may indicate a need to reassess your spending habits or find ways to increase your income.
By carrying out this analysis, you will be better equipped to create a realistic and effective budget. When we reach Step 10, in a later issue, we will explore in detail how to create and maintain a budget that accurately reflects the money coming in and going out, thus ensuring sound and effective financial management. What we have presented above is only the beginning of an exciting journey towards financial wellbeing. By facing your financial situation head-on, as we propose, you are taking the important first step towards building a safer and more prosperous future. For more tips and guidance on how to improve your financial skills in 2024, keep following the articles in the coming issues of our, and your, Xonguila.
