Organizing your personal finances can be little tricky and time consuming. But where to start? You need to ask yourself a few questions first. Is your monthly cash flow positive or negative? What is your net worth? Is your financial status at the right stage where you want it to be? What are your financial goals? Now that you have asked yourself these questions, you might have figured out the answers too! Is it “NO”? Or are you confused? If so, these 7 steps will make sure that you manage your money better!
- Assets and liabilities :
This is the primary step of managing your money. Take a writing pad and a pen or just open up an excel spreadsheet. Write down all your assets and liabilities.
- Assets: Calculate the net value of all your assets. They can range from your properties, vehicles, retirement funds, stocks to anything that has a worth to you.
- Liabilities: calculate the net debt you owe. They can be car loans, education loans, credit card balance amount etc.
- Net worth :
Now that you have calculated the value of your assets and liabilities, the next step is to calculate your net worth. Well, the formula is simple:
After calculating your net worth, you will have an idea of your financial value.
- Cash flow :
Your net worth will help you in creating your monthly budget. This will help you to save more money. Knowing your cash flow is important as you will exactly know where you are spending those extra dollars and where to curb! Preparing a monthly budget is pretty simple.
List down all your income and expenses. If you are saving money, that means you have a positive cash flow. If your expenses are more than your income, this means you have a negative cash flow. Here’s the formula:
- Credit score :
A great start towards managing money is to know your net worth and your cash flow! You have calculated that, great! So the next step is to know your credit score. If you have a good credit score, you can save thousands of dollars and get low interest rates! Paying your bills and clearing your monthly credit card debts at a fixed time is a good way to improve your credit score!
- Personal finance :
The next step is to know your overall personal finance in detail!
- Net worth: If your net worth is positive then you are doing great! If not, you need to set goals and work hard to increase it!
- Cash flow: Make sure that your cash flow is also a positive number. If you have more expenses than your income, you need to curb down your expenses to make that number positive! This is very important if you want to manage your money effectively.
- Credit score: Having a good credit score is very advantageous! After knowing your credit score, compare it with the values given below:
- Excellent: 800-850
- Very good: 750-799
- Good: 700-749
- Fair: 650-699
- Poor: 600-649
- Very bad: 300-599
- Monthly and yearly budget :
A budget plan is must if you want to manage your money well and save for retirement funds or vacation funds! After you have followed this steps you must have got a clear idea about your personal finance. Now you know where you are spending extra money which can be saved easily. Creating a monthly and eventually a yearly budget plan will help you to do so!
- Review :
Once you have followed the above six steps, you must have a budget plan ready! The idea of reviewing it every month is necessary, so that you know where you stand financially.
You will surely become an expert at managing your funds if you follow these easy steps! Also remember, reviewing is also an important step that must not be skipped. It will help you to know the growth in your assets!