One of the ways to get financially organized is to just start doing something. At some point you will get enough data and knowledge to compare your past and present and actually change something. But this will take a lot of time and effort since most of your actions will be made based on assumptions instead of facts. But there’s another way, the way of knowing exactly what you need to do and where to start.

You will begin by organizing your finances and calculating several important numbers. Here’s a step by step guide to things you need to do:

Writing down your Assets and Liabilities

Your Assets are: bank accounts (savings, checking), retirement accounts (if you have any), emergency funds, equity in your home, car(s), and any bonds/stocks/etc.

Your Liabilities are: any debts, including mortgage, student loans, car loans, credit cards, any other forms of debt you might have.

Write them all down in an Excel file, a piece of paper, or whatever you want to use. It should be simple: name of asset/liability and the value next to it. “But why?”, you will ask me. You will need all this to

Calculate your Net Worth

This one is easy: you simply subtract all your liabilities from your assets. Yes, Assets — Liabilities = Net Worth.

You can use an Excel spreadsheet to do this automatically or a good ol’ calculator. Write down the final number and continue to the next step.

Recording your income and expense history

In the first two steps you have gained a general knowledge of your finances. This shows you where you stand at and the numbers you operate with, which is a great thing to be aware of. Another important part of managing your finances is knowing your cash flow. You can calculate this by tracking each and every income and expense. Guess what, Fentury is really good at this!

For income, include any source you may have: salary, gifts, investment income from stocks/bonds, any paychecks from side jobs, etc.

For expenses, anything that you are paying for: housing, bills, groceries, eating out, and probably dozens of other various ways to waste money.

Later on you will need this information for two reasons: allocating your funds to certain categories of expenses and

Calculating your Cash Flow

Just like with Net Worth, this step is pretty easy: you deduct expenses from income. You can calculate this for each week, month, quarter, or year. Income — Expenses = Cash Flow

Getting your Credit Score and Credit Reports

After you have calculated your Net Worth (Assets — Liabilities) and Cash Flow (Income — Expenses), the next step will be finding out your credit situation. Credit Reports, as well as Credit Score results, are provided by a whole number of companies and are relatively easy to obtain. It’s even easier if you are a US resident, simply visit theAnnualCreditReport website to get a free yearly Credit Report. Credit scores can be obtained by either visiting specialized websites or by requesting this information from third-party companies for a small fee.

Evaluation

This is one of the most important parts of this whole process. Once you have gained the information outlined earlier, you will know where you stand financially. Now let us evaluate each of these numbers:

Net Worth

In case you’ve received a positive number — your assets are worth more than your liabilities — you are a lucky person with a decent financial life. However, if you’ve found yourself with a negative number in hands, you should set a goal to change that. Knowing your Net Worth is the first step to changing it.

Cash Flow

Ideally, this should be a positive amount and the bigger it is, the better. However, make sure that you account your credit card debt in the cash flow. If you have a positive cash flow, but you are using credit cards to make up for the difference and you carry a significant credit card balance — you’re probably living beyond your limits. The important part is making sure your final score is accurate and honest, because only this way you will be able to decide how to better allocate any free funds or create a clear path to financial success.

Credit Report

Study your credit report carefully and search for any errors. If you find any information that is incorrect, make sure to report this to the relevant credit bureau. They are obligated to look into the claim within 30 days. Another option would be contacting the creditor directly to dispute the entry.

Credit Score

Based on where you live, you may receive different numbers for your credit score. For USA and Canada this will vary between 300 to 850 and 300 to 900, respectively. Here’s a quick rundown for these numbers and rating:

1. Below 500: Very Bad
2. 500–549: Bad
3. 550–599: Poor
4. 600–649: Average/Fair
5. 650–699: Good
6. 700–749: Very Good
7. 750 and higher: Excellent

The better your score is, the more likely you are to receive a bigger credit. Try your best to pay back your credit debt in full every month.

Create monthly and yearly budgets

Once you have all the valuable information, you can start planning out your future. To begin, create a detailed budget for each of the things you would like to change; the numbers you’ve acquired earlier will show the biggest gaps in your finances. If you want to approach this seriously, try using our handy guide to creating effective budgets. Just remember, be honest with yourself and create a plan that you will be able to stick with.

“Rinse, Repeat”

It is important to understand that if you are not being 100% dedicated to your personal finance, it will abandon you at some point. That is why repeating this whole process at least once a year has proven to be efficient in making sure you are heading in the direction you have chosen. You can also save yourself the trouble and simply use Fentury as your ultimate tool that has everything included.

Do you perform regular checks of your financial health? Or do you prefer to leave the whole process to a financial adviser?

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