2.1 Assessing current financial situation

First step of managing your financial situation is assessing your current financial state. In order to create a financial plan and achieve your financial goals, the current financial situation must be analyzed as a starting point. It is helpful to think of your financial position as your personal fingerprint as it identifies your present status.   

It’s important to evaluate your financial status for a number of reasons. First and foremost, it gives you a comprehensive understanding of your financial situation, including income, expenses, assets, liabilities, savings, and investments. With the ability to recognize your financial situation’s advantages and disadvantages, you may take advantage of the former and improve the latter. Furthermore, establishing attainable financial goals that complement your skills and resources requires that you have a clear awareness of your existing financial condition. It acts as the cornerstone for making a customized budget that represents your priorities and facilitates efficient spending tracking. By evaluating your financial status, you can also make educated decisions on investments, emergency readiness, retirement, and savings in the future. To put it another way, you give yourself the ability to take proactive measures that will ultimately result in increased financial success and stability by assessing your existing financial situation.

How can you assess your financial situation?

There are five key steps that will help you assess your financial situation, 1. Calculate your net worth, 2. Analyze your cash flow, 3. Review your dept situation, 4. Evaluate your retirement account and 5. Work with an advisor.

• Calculate your net worth: 

Begin by conducting a thorough assessment of your financial standing, focusing on determining your net worth. Compile a comprehensive list of your assets, encompassing your property, investments, savings accounts, and any valuable possessions. Subsequently, itemize all of your liabilities, comprising mortgages, credit card balances, and outstanding loans. Calculate your net worth by subtracting your total liabilities from your total assets. This process yields a snapshot of your current financial position and serves as a foundational step for tracking your financial progress over time.

• Analyze your cash flow:

It is imperative to have a comprehensive understanding of your income and expenditures. Begin by meticulously documenting all sources of monthly income, encompassing earnings from rentals, salaries, and additional revenue streams. Subsequently, compile a detailed list of your monthly expenses, categorizing them into variable costs such as groceries, dining out, entertainment, and discretionary spending, as well as fixed costs such as utilities, rent or mortgage payments, and insurance premiums. Conducting a cash flow analysis enables you to identify areas where expenditure reductions are feasible, thereby enhancing your ability to bolster savings.

• Review your dept situation 

Conducting a thorough debt assessment is a fundamental aspect of financial planning. Begin by documenting all outstanding debts, encompassing credit card balances, auto loans, and student loans. Maintain a record of each debt’s interest rate and monthly payment obligation. Prioritize paying off debts with higher interest rates first to minimize interest costs and optimize available funds for retirement savings.

• Evaluate your retirement account 

Review your current pension plans and retirement accounts with careful scrutiny. Assess the associated fees, investment performance, and total contributions made to each account. If your employer offers matching contributions, consider increasing your contribution rate to maximize this benefit. Additionally, contemplate consolidating multiple retirement accounts to streamline your savings strategy and potentially reduce expenses.

• Work with an advisor

Seek guidance from a certified financial advisor if you require assistance in evaluating your financial status or devising an effective retirement savings strategy. A financial advisor can offer expertise in assessing your current situation, setting attainable goals, and crafting a tailored plan to enhance your retirement savings.