Is your personal finance journey just beginning? Or have you recently decided that you need to improve your financial situation? Either way, making the decision to take control of your finances is the first step on the road to financial security. Here are the next steps to take.
Calculate your personal net worth
Make a list of your assets (owned cars and/or real estate, bank accounts, investments, etc.) and your debts (car loans, mortgage, student loan, credit card debt, etc.). Calculate your net worth by subtracting your debts from your assets.
In addition to determining your net worth, this exercise will give you a general overview of your financial situation and make it easier to review all your assets and debts in the future.
Determine your cash flow
How much income do you receive every month? How much do you spend? How much money do you have left over?
Track each of your income sources and expenses over the course of a month to see where you are spending your money and to get a general feel for your spending habits.
Create a budget
Now that you have gathered all this information, it’s time to create a budget.
Your personal net worth statement can help you determine a goal for your budget. For example, a review of your assets might reveal that you don’t have enough money in your savings account for an emergency fund. Or maybe a negative net worth might inspire you to alleviate some or all of your debt.
Once you have a goal, your cash flow can help you develop your budget. Use it to determine which expenses can be whittled down (the amount you spend on dining out, for example) or eliminated entirely (like a gym membership that you rarely use). Then earmark parts of your income for necessities (such as housing and groceries) and the minimum payment on debts. Allocate the rest of your money for your goal.