Unfortunately, if you weren't lucky enough to have parents or a mentor to teach you how to make smart choices with your money you were left to learn on your own. However, the basics of financial planning are not hard to learn, and you can easily manage a basic plan on your own with only a few hours of research and a few online trades per year. This article will walk you through the first step of developing your personal financial plan, assessing your financial health.
The first step in assessing your financial health is to compute your total net worth. Gather all your account statements (checking, savings, investments, 401k, IRAs, etc) and all of your current bills/debts (credit cards, student loans, car loans, etc). Next do some basic math. Add up all of your assets (except your home if you own it) and then subtract all of your debts/liabilities (except your home mortgage). I advise people not to include their home unless they definitely plan on selling it later as part of their financial plan, however this is a matter of personal preference (remember to include your mortgage as a debt if you include your home equity as an asset). This number is your current net worth, and it will be your starting point for your financial journey.
Now, figure out where your money is going. If you are like most people, you spend just a little bit more than you make. Deficit spending may work for the government, however for you rule number one for making responsible choices with your money is to spend less than you earn. Pull out your bank statements, credit card statements, phone bills, etc and write down how much you spend each month. Quicken and Mint both offer good budgeting software, or you can simply do it in excel or by hand on notebook paper. Don't forget to include rent/mortgage, car payments, going out to eat, vet bills, gas, holiday/birthday/anniversary presents (average to a per month basis), etc etc. Another technique is to religiously track every dollar you spend for a month or two. This step is pretty tedious, but once you do it and get your budget set up, you will only need to review and make minor changes once a year or so. Now compare your monthly spending to your monthly take home salary. If the number is positive, congratulations. If it is negative, you have some work to do. In either case, if you look closely at where your money is going you can almost always find areas where you can cut back. Do you REALLY need the ultra fast internet connection or will the somewhat slower plan work? Do you REALLY need the $5 super caramel mocha frappuccino caffeine bomb every morning? Do you smoke? At more than $4 a pack, this is a great way to help your budget and your health.
Next, request a copy of your credit report. Go to https://www.annualcreditreport.com to request a free copy of your report. This is the only site authorized by the government to fill your free credit report requests, all of the other sites are imposters and usually try to sell you expensive credit monitoring as part of the free report. You can request one from each credit agency every 12 months, so a good idea is to request one from a different agency every 4 months, that way you get a picture of your credit throughout the year. Review your report for errors (they happen often) and if you find any, request they be fixed. You can also include explanatory information for derogatory marks on your report. When first getting started, and every few years or so going forward, it's a good idea to pay for your credit score as well (this isn't included in your free report). You can usually get it for less than $10 if you go direct to the credit agency (Experian, Transunion, Equifax). If you have less than stellar credit, a good plan going forward is to put all of your bills on auto pay (most banks offer this), so you don't have to worry about whether you remembered to pay something last month.
While not necessary, it is helpful to also calculate your debt to income ratio. Add up all of your consumer debt (car loans, credit card balances, store credit card balances, basically anything you purchased on credit that you don't expect to increase in value) and divide it by your annual after tax income. If the result is anything greater than about 15% you are entering a danger zone and should consider going to all cash for your purchases until you pay your balances down.
Now, write all of these numbers down and keep them some place safe. You'll be referring to them as you develop your financial plan, and as years go by you'll use them to track your progress.
The author is an experienced financial planner, investor, financial coach and small business owner.
Article Source: http://EzineArticles.com/?expert=Ben_Reece
Article Source: http://EzineArticles.com/7838495
The first step in assessing your financial health is to compute your total net worth. Gather all your account statements (checking, savings, investments, 401k, IRAs, etc) and all of your current bills/debts (credit cards, student loans, car loans, etc). Next do some basic math. Add up all of your assets (except your home if you own it) and then subtract all of your debts/liabilities (except your home mortgage). I advise people not to include their home unless they definitely plan on selling it later as part of their financial plan, however this is a matter of personal preference (remember to include your mortgage as a debt if you include your home equity as an asset). This number is your current net worth, and it will be your starting point for your financial journey.
Now, figure out where your money is going. If you are like most people, you spend just a little bit more than you make. Deficit spending may work for the government, however for you rule number one for making responsible choices with your money is to spend less than you earn. Pull out your bank statements, credit card statements, phone bills, etc and write down how much you spend each month. Quicken and Mint both offer good budgeting software, or you can simply do it in excel or by hand on notebook paper. Don't forget to include rent/mortgage, car payments, going out to eat, vet bills, gas, holiday/birthday/anniversary presents (average to a per month basis), etc etc. Another technique is to religiously track every dollar you spend for a month or two. This step is pretty tedious, but once you do it and get your budget set up, you will only need to review and make minor changes once a year or so. Now compare your monthly spending to your monthly take home salary. If the number is positive, congratulations. If it is negative, you have some work to do. In either case, if you look closely at where your money is going you can almost always find areas where you can cut back. Do you REALLY need the ultra fast internet connection or will the somewhat slower plan work? Do you REALLY need the $5 super caramel mocha frappuccino caffeine bomb every morning? Do you smoke? At more than $4 a pack, this is a great way to help your budget and your health.
Next, request a copy of your credit report. Go to https://www.annualcreditreport.com to request a free copy of your report. This is the only site authorized by the government to fill your free credit report requests, all of the other sites are imposters and usually try to sell you expensive credit monitoring as part of the free report. You can request one from each credit agency every 12 months, so a good idea is to request one from a different agency every 4 months, that way you get a picture of your credit throughout the year. Review your report for errors (they happen often) and if you find any, request they be fixed. You can also include explanatory information for derogatory marks on your report. When first getting started, and every few years or so going forward, it's a good idea to pay for your credit score as well (this isn't included in your free report). You can usually get it for less than $10 if you go direct to the credit agency (Experian, Transunion, Equifax). If you have less than stellar credit, a good plan going forward is to put all of your bills on auto pay (most banks offer this), so you don't have to worry about whether you remembered to pay something last month.
While not necessary, it is helpful to also calculate your debt to income ratio. Add up all of your consumer debt (car loans, credit card balances, store credit card balances, basically anything you purchased on credit that you don't expect to increase in value) and divide it by your annual after tax income. If the result is anything greater than about 15% you are entering a danger zone and should consider going to all cash for your purchases until you pay your balances down.
Now, write all of these numbers down and keep them some place safe. You'll be referring to them as you develop your financial plan, and as years go by you'll use them to track your progress.
The author is an experienced financial planner, investor, financial coach and small business owner.
Article Source: http://EzineArticles.com/?expert=Ben_Reece
Article Source: http://EzineArticles.com/7838495
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