Disclaimer: I am not a financial expert. This is information that I have learned through personal research. I will do my best to include sources for information that I have obtained.
The first step to improving your finances is to be aware of where you stand. This means knowing your income, your essential expenses, your assets, and your liabilities. Many people do not know these numbers for many reasons, but to get in control of your finances you have to know where you are to get where you want to be.
In this article, I am going to help you figure out these numbers, so you can begin taking steps to build the life you want. It will also make it easier to track how you are improving over time.
Download the 2021 Financial Profile PDF below to document the information that you gain about your finances.
Determine the Current State of Your Finances
Your Income
You need to know how much money you make in a month. Many people spend more than what they make or spend exactly the same amount of money they make.
To avoid this you need to know how much money you have to work with.
You need to document your monthly income. If you have a job where your income varies, you will want to take the average of the last three normal months to determine what you make. It is always best to underestimate your income so that you don’t overextend yourself.
Your Essential Expenses
You need to know how much money you spend on your basic, essential expenses. These are your bills that you have to pay to ensure your basic standard of living. These basic, essentials expenses are:
- Rent
- Utilities
- Renter’s Insurance
- Car Payment
- Car Insurance
- Groceries & Household Items
- Gas
- Internet
- Cell phone bill
- Personal Care
- Tithe
- Minimum Debt Payments
Discretionary Spending
To calculate your discretionary spending you will take your income minus your essential spending. Your discretionary spending is what you use to save, invest, pay extra to your debt, and spend on fun.
Your Assets
Assets are items that you own that have monetary value. Examples of assets are your savings, IRA, 401K, investment accounts, the value of your home and car. You will want to continue to increase your assets over time because this will help you to build real wealth.
Your Liabilities
Liabilities are debts. Examples of liabilities are car loans, mortgages, credit card debt, student loans, and personal loan debt.