I know some of us may need more than 7 days to get our finances in order. Some of us may want to take a more calculated approach. If you want something more calculated then this series, Six Months to Financial Fitness is for you. Over the next six day’s, you can see how in the next six months you can be on the road to financial freedom. The first month, you need to get on the financial scales. I know if you are like me, the scales are not your friend. Good thing we are not tracking pounds because that scale is not for me.
It’s no wonder that we’re all so worried about money, We’re living longer, retiring earlier and expecting more out of our retirement. At our high rate of spending and low rate of saving, 75% of us will retire with less than half of what we need. The key is to do something about it now.
Month 1 Get on The Financial Scales
Create an overview of where you stand financially by creating net worth and cash flow statements
Set up separate folders for your bank, investment accounts, credit cards and any real estate and cars that you own. Make up a worksheet. On the left side, list the fair market value of your assets.
Example: Estimate conservatively what you could sell your how for today (not what you would like to get for it). Add up the numbers. The result is your total assets. On the right side, list your liabilities, including mortgages, credit card balances, car loans and other debts. The result is your total liabilities.
Your net worth: Subtract your total liabilities from your total assets. This is your net worth
Once you have calculated your net worth, determine how you are spending your money on a regular basis.
How To: Set up another worksheet. On the left side, write the 12 months on separate lines, starting with the current month and going in reverse chronological order.
Make two headings at the top of the page: Total Monthly Deposits (credits) on the left side and Total Monthly Withdrawals (debits) on the right side
Step 1: Gather your bank statements for the last 12 months. Under each column on the worksheet, fill in the deposits and withdrawals month by month. Add the columns to get your yearly credits and debits.
Step 2: Subtract from both columns, the annual amount withheld for Social Security and any income taxes paid by check in the last 12 months, This process provides you with a more accurate indication of your spendable income and those expenses over which you control. Add to both columns all other nontax expenses withheld from your paycheck, such as company insurance premiums.
Step 3: On the credit side, add savings and retirement-plan contributions withheld. On the debit side, either add or subtract the increase or decrease in the amount of your consumer debt during the past 12 months.
Step 4: Examine the results: your after-tax annual income and total annual expenses. Income must exceed expenses, or you are heading for financial trouble.
Here is a strategy for you, track your weekly expenses in detail for the next five months to find out where your money goes. I know five months in a long time, but I promise you will be better off financially for doing it. Write down every cent you spend in a small notebook. Don’t try to do anything about the pattern at first. For those following the six-month plan, it’s best to take at least two months to begin to change your spending habits