How to actually organize your finance
In the previous post, I have told you how important it is to manage your personal finances. But, obviously it’s not as easy as it looks. Organizing your finances can be daunting as hell.
In fact, we human are creatures of habit and routine. And, yes, habit are definitely difficult to change. No matter how much effort you make, unless you’re really determined, you still find yourself end up right where you started.
It’s hard but it doesn’t mean you can do it. Keep reading those following steps to see how I rid myself of finance woe and hope that they help you too.
1. Be aware of your assets and liabilities
You might wonder what assets and liabilities are. Think simple.
- Assets: All your property
- Liabilities: All your debts
It’s much better to write down those on a simple piece of paper of in a spreadsheet. Next to the name of the asset or liability put their value
2. Calculate your net worth
To do this step, you just need to take what you wrote down in step one and doing a little math. Your net worth will be defined as assets minus liabilities.
Assets — Liabilities = Net Worth
These step will give you a big picture of your overall finance.
3. Write down your income and expenses
Just like what you did in step one. Write down your income and expenses.
- Income: List any income you receive every month.
- Expenses: List your total monthly expenses.
4. Calculate your cash flow
For those who haven’t known about cash flow yet, just think of it as “money in and money out”. To calculate your monthly cash flow, you just need to subtract your total expenses from your total income.
Income — Expenses = Monthly Cash Flow
5. It’s time to evaluate:
The single biggest thing to consider first if you want to improve your financial life is getting a hold on your personal finances. This is the foundation on which you can start to make positive changes and without it you’re trying to get to your chosen destination without having a map.
That’s why once you had all these above information, evaluate it.
- Net worth: Your net worth can tell you a lot about your current financial health. If you have less assets than liabilities, you have a lot of work to do now. Better, you have more assets than liabilities, good for you, you have a positive net worth. However, if it’s still lower than what you expect, set a clear goal to increase it.
Not just that, you should also get in the habit of re-calculating your net worth yearly or whenever there is a significant change to your finances.
- Cash flow: The point here is to get an idea of exactly where all of your money goes or find out whether you’re overspending, underspending, or somewhere in the middle.
If you are spending more than you make every single month, then you will slowly, subtly slip into a life of financial hardship. So, when you got to know what your cash flow looks like, you can make adjustments and create a plan to achieve your financial dreams.
6. Embrace budgeting
With all these above steps, you now have a general look of the whole situation. It’s time to get your hands dirty, make magic happen. Next step to do is creating a budget.
If chasing your financial dream is a journey, and evaluating your finances tells you where you’re starting from, creating — and yes, sticking to — a budget is like the compass that can guide you to your eventual destination.
7. Start saving money
Saving is fairly tough. I get that. You have to deny yourself spending opportunities that you would otherwise have taken. Putting some money into your savings account seemingly has no real benefits. No new gorgeous shoes. No stunning dress. And certainly no sunny beach vacation.
If the ATM was willing to give you money, why don’t you spend it? Oh honey, wake up! I’m sorry to burst your bubble but you shouldn’t indulge in that illusion.
The fact is the sooner you start saving, the bigger benefits become. This is a marathon, not a sprint, and every time you avoid spending unnecessary money is another step in the right direction to your financial dream.
Okay, that are 7 steps that help you keep your personal finances organized. Yup, another long post but it worths! Start doing all these steps today.
Next post, I will bring to you some tips about living on a tight budget without going mad. Keep updated! Bye for now, my friends.