Almost everyone has some kind of idea as to how healthy their finances are in general, but in reality, very few would be able to definitely give a detailed evaluation. This where professional financial planning is often required. especially when someone is about to make an important decision relating to their finances such as take out a mortgage.
Be honest with yourself and answer whether you can be 100% certain as to your financial health as it currently exists. If the answer is no, the reason might not be that you do not care, but simply you are unsure where to start or and how to proceed with a personal financial health check.
It is not as difficult as you might imagine, and you certainly do not need to be a qualified accountant. The caveat to that is if you have a major financial decision looming you should seek the advice of financial planning experts at www.andep.com.au. In the meantime, you can at least give yourself a clearer evaluation of your finances by following the 5 steps that follow.
Step #1: Calculate Your Monthly/Annual Net Worth
In order to make any kind of financial decision properly you need to know exactly how much disposable income you have available to you, by calculating your monthly new worth. This can also be done on an annual basis, although monthly is more useful with regards to calculating what you can afford to pay out on a monthly basis. Simply deduct your total outgoings from your total income and do this as a joint figure if you have a spouse or partner.
Step #2: Identify Ways To Increase Your Monthly Net Worth
After step #1 many people are alarmed that their total income is only just covering their outgoings, but there is usually no need to panic. It is almost certain that many expenses can be reduced or even eliminated. Finding cheaper utility companies and insurance policies, consolidating credit, and cutting down on excess spending on luxuries, can often reduce a household’s outgoings considerably, meaning income now far exceeds outgoings.
Step #3: Evaluate Your Debt To Assets Ratio
This is a simple calculation whereby you first add up the total amount that you owe to banks, mortgage lenders, and credit card companies and subtract that from the total value of assets that you own, which includes property equity, shares, commodities, investments, your car, and other valuable personal belongings such as jewellery. Ideally you want the figure to be positive rather than negative.
Step #4: Evaluate Your Investments And Retirement Savings
Regardless of what age you are, it is never too early to consider your long-term future, and that certainly includes thinking about your retirement. Your financial health check is not just about today, but your tomorrows too, so seek expert advice with regards to financial planning for your future. This can include saving for your retirement, and investments, be that investing for the first time, or you diversifying the investments you already have.
Step #5: Consider Your Financial Goals
As well as planning for the longer term with regards to your retirement savings, it also advisable that you set yourself financial goals, for the short and medium-term too. This can be as diverse as you wish and can cover just about every aspect of your finances. Examples can be your income goals and plans for your career. You might also wish to set a goal for a date when you wish to be debt-free, or for the value of the house, you ultimately own.