You’ve pulled your head from the sand and finally decided to take action when it comes to your personal finances.
Whether you’re a decade from retiring or just finished University this ‘to do list’ is going help you get started. Helping you understand the position you’re in financially and gain a better understanding of your potential financial future. As well as how you can change it.
Calculate Your Net Worth
I personally use Microsoft Excel however there are a number of different online and offline tools to help you do this. Work out how much you (and your business, if you have one) is worth. Updating this monthly is essential to ensure that you’re on target to achieve your financial goals.
I’ve created this super simple spreadsheet that you can download for free to calculate your net worth. It’s super easy to personalise depending on your circumstances and should help you get started.
Track Your Spending
Now it’s time to look at where all your money is going?
If you’re on target with your net worth then you can afford to forgive a few luxuries (for now). However, if you’re behind and living paycheque to paycheque then it’s probably time to start looking at how you can cut back. Take a look at the 50 / 20 / 30 rule as a way of splitting your money between accounts.
Check Your Credit Score
I make a habit of doing this once a year regardless of whether I’m looking to take out a credit card, loan or mortgage. You credit score is going to give you a look at the ‘bigger picture’ and provide you with an indication as to how likely you are to get a loan (etc.) from the bank.
I’d recommend using Equifax they offer a 30-day free trial which is more than enough time for your to check your credit score and download it or print it of for future reference. Taking the time to understand and adjust things as necessary based on your credit score is going to save you a lot of headaches further down the road.
Now you know what you’re worth and how much you spend it’s time to start thinking about goals and targets. This sounds so boring I know, but planning here is important.
Decide where you want to be financially in five, ten, twenty years and backdate that to work out how much you need to save each month or year. Track your goals to ensure you’re meeting them and if you’re not you need to decide how you’re going to tackle that. Are you going to move the goal posts or look to earn or save more instead.
It’s important to think about your pension provider too. Are they the best one for you and how can you ensure you’re getting the best from your employers contribution. In some cases it could be worth sitting down with an accountant (most offer one hour consultation for free) to learn more.
From goals comes rewards. It’s important to set a small amount of cash aside as a reward for hitting your financial targets on a regular basis. This could be anything from dinner out to a weekend away. This will motivate you to work harder going forward.
To achieve your goals you’re going to
want need a budget. Pitch your budget against your previous spending, net worth and goals and you should begin to get an idea of how much of your paycheque you’re left with once you’ve put money aside for your saving goals etc. The 50 / 30 / 20 rule is a simple concept that should help you to get started.
In the coming weeks I’ll be sharing more fantastic hints and tips on how you can get started with personal finance. If you have any specific personal finance requests then feel free to let me know in the comments below and I’ll do my best to get back to you.