Getting control of your finances

It’s difficult to plan your life without doing some thinking about money. Lots of people have difficulty in planning their finances. Not many of us are good at sums, very few of us have been taught money management in any formal way and most people learn their attitudes and money management practices from their parents – and rarely think to challenge them.




In my experience the way people handle money, what they believe about it and their attitudes to it vary enormously. Money is often seen as a private issue – so we don’t talk about it. That means we don’t often share stories about good and bad money behaviour. How do you know how well (or not) you are doing?


If you want to get control of your finances you really need to be honest with yourself and know the facts. What is the current scale of your money problems?


I often recommend that people start by understanding their Net Worth (That’s a fancy description for a current financial status). It’s a great starting point and a great foundation measure for any future thinking on money.


How much, exactly, are you worth today?


Working this out takes a bit of effort, but it can be a really illuminating exercise. To get you started your analysis doesn’t need to be absolutely accurate – best guesses will do, however, you do need to develop a bit of “helicopter vision” – the ability to fly above your current financial situation and really see it for what it is.


Step 1: What is the value of your assets? If you have a home, how much could you sell it for? What about the house contents? What could you sell your car (if you have one) or other possessions for? Do you have any savings? How much money do you have in the bank?


Step 2: Now work out your debts (liabilities). This is usually a bit more challenging. How much do you owe on your mortgage? (Not your monthly payment – how much in total). How about Credit cards? Bank loans? Overdrafts?


Step 3: Work out the difference between your assets and your debts. Take the number you have for debts from the number you have for assets. That is your Net Worth. That’s how much wealth you have accumulated in life so far if you settled everything today. If you sold everything you have and used the income to settle your debts it is what would be left over.


If your debts are bigger than your assets you need to develop a plan to get to a situation where your assets are worth more than your debts. In the end you really want to be debt free – debt free means financial freedom. Financial freedom means the ability to buy whatever you want when you want.


If you are really having trouble making ends meet and the debt are piling up remember that debt is a habit. Debts can cost you a huge amount in the long term – what with the interest on your mortgage, credit cards, loans or overdraft and its helpful to understand exactly how much.


Remember you have a moral duty to repay your debts. The people who provided you with the stuff/or services that cost you money in the first place did so in good faith and you should pay for them.


In my opinion there is nothing wrong with borrowing money to do more of what you want – as long as you know you have the ability to make the repayments. But I would recommend that your overall focus should be on debt elimination. Most of what people want out of life hinges on financial freedom. So the sooner your life plan includes some thinking about financial freedom the better.


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