Do You Know Exactly Where You Stand Financially10th November 2011 Do you know exactly where you stand, financially? Are you aware of how much money passes through your hands each year?…..No? Well, here’s an exercise that will show you exactly what your current financial situation is. First of all, get comfortable. Make yourself a tea or a coffee and set yourself up in a place where you won’t be disturbed or have any distractions for an hour or so. Now, what you’re about to do, is make a list of all the things you spend money on throughout the year, so you’ll need to go to your filing cabinet, or wherever it is you keep your important documents and find all the insurance papers, copies of bills etc. from the previous year. Begin to make a list of all the items you spend money on but also make note of how frequently you pay them. Some things you may spend money on weekly, like groceries. Others may be fortnightly like mortgage repayments. You might pay your phone bill monthly and insurance premiums are generally yearly. So, let’s get started. The obvious ones are going to be mortgage repayments or rent, as perhaps your biggest expense as well as any other loans you might have. A car loan for example. And then you might think about Council Rates and/or Body Corporate Fees. Utilities – electricity, water, phone and internet. Credit card payments. And then there’s the cost of feeding and clothing yourself and your family. What about vehicle registrations, maintenance and fuel? And the many different insurances necessary if you want to be prepared for the ‘just in case’ scenarios – Vehicle Insurance, Life Insurance, Income Protection Insurance, Private Health Insurance, Home and Contents Insurance. Your list will be quite long but here are a few questions to ask yourself as you add to your list: Do you:
And for the ladies,
And lastly, if you already put money aside regularly for savings, also add this to your list. Do you have a Christmas Saver Account? Add this to the list as well. So now that you’ve made a list of absolutely everything you spend money on, calculate each item down to how often you get paid – weekly, fortnightly or monthly. For example, if you get paid weekly but you pay your Home and Contents Insurance yearly, divide your premium by 52. (Fortnightly, divide by 26 and monthly, divide by 12) Then add all these individual figures together, to get a total figure for the amount of money needed each time you get paid, to cover your cost of living. Then take this figure away from how much you earn – weekly, fortnightly or monthly. For those of you who do regular overtime, and therefore your income is different each pay period, use an average earnings figure. For example, add up four weeks (or fortnights/months) of income, then divide it by four to get an average. It’s better to slightly underestimate your income than over estimate and be shor Is that final figure positive or negative? So what has this exercise shown you? Are you living outside of your means by spending more than you earn? Are there expenses you can reduce to bring your finances back in line? Do you need to create a budget/limit for various categories, like groceries and entertainment? Has this exercise shown you that you don’t spend as much as you thought you did, and therefore, save a good portion of your income? If so, well done. The bottom line is, if you’re goal is to own a home or investment property, to refinance or to apply for a loan for any purpose, the lending institution wants to see a pattern of regular savings, as well as no defaults on repayments of current loans or rental payments. So ask yourself, what are my financial goals, and are my current financial habits going to get me there?
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