Self Survey–How Are My Finances Doing?

verabear Financial Freedom 20 Comments

A few weeks ago, we talked about the first step in Personal Finance according to Verabear: Set your financial goals. I hope you’ve listed them down somewhere, if not, take a few minutes and do so, then come back.

Now that we’ve thought about our financial goals – or maybe even our life goals – we’re ready for the next step. Before we even talk about how we get from here to there, we must first determine what the here means.

Let’s take a look at the current situation – how are you doing, financially?

Take this short survey:

– How much do I have in my bank account/s? –

An Emergency Fund is vital for success. The amount or how much this fund needs to be varies from person to person. Think of it as a cushion that will help soften your fall in case of emergency. Let’s say you find yourself cut off from your income source all of a sudden. The emergency fund is what will help you get through your day to day life without resorting to debt.

Like I mentioned, the amount that needs to be in this fund varies, but typically, it’s three to six months’ worth of expenses.

For most of us, our savings account holds the emergency fund. But an accessible savings account makes it easy and tempting to spend that money for things other than emergencies. That brand new LED SMART TV on sale might sound like an emergency, but if you dip your fingers into your EF, then it may not be so smart.

Sadly, that has been the story of my life, and my bank account’s life.  I bought my first iPad using money from my Savings account. When I’m short for the month’s expenses, I turn to my handy ATM and take from my Savings. As a result, I have an Emergency Fund that will probably only last a month if I find myself unemployed.

It’s a story I am now changing.

It makes sense to me to have a separate account for the EF, and one for short term saving. Short term saving is for big or small expenses I am saving up for. Depending on how big or small it’s going to be, it may make sense to setup separate bank accounts for each. Right now, I have my EF account, my payroll account (for my daily expenses, and short term savings too), and a Savings account for our Wedding fund.

– How much do I owe? –

Be honest. Your success depends on how honest you can be to yourself.

If you have credit cards, take at a look at your latest statement and list down how much you still owe. I do believe in credit cards being a convenient tool for financial success, but if no one tells us how to use them wisely, they end up becoming a tool that ruins us.

I have three credit cards – way too much. I will soon terminate one of them, but I’ve accumulated a shameful amount of credit card debt. Honestly, I thought that the interest rate for cards were small enough. But if you think about compound interest, and that it grows each month, you realize how important it really is to payoff your credit card bill in full, each month.

I’ll talk more about debts and repayment some other time. For now, let’s focus on inspecting our current situation.

Apart from credit card debt, do you owe anyone anything? I owed my Dad money for my car. I’ve got about 50k left to pay, but he’s allowed me to put off payments because I now also have to pay for my medical bill from last year’s back operation.

Knowing how much you owe makes it easier to plan on how much money to set aside monthly to pay them off.

– How much do I have in investments? –

Have you invested on anything at all? Do you have a life insurance policy? Do you have property, or a business, anything?

Is this something you’ve thought about a lot? Or are you not interested in making any investments?

Investments can be an additional source of income, or it may be your passport to the future. It’s been said how keeping your money in the bank doesn’t amount to much anymore. All it is, really, is a secure way to keep your money instead of stowing them away under your bed. Investments, in contrast, grow your money. How are you growing your money?

How do you want to grow your money? What’s the best investment instrument for you?

I invest in stocks. I have a life insurance policy. The company I work for pays for my health insurance, and that of my parents’ too. They also took out a group insurance company for all employees.

I was supposed to take out another life insurance policy a few months ago, with a mutual funds counterpart. It fell through so it’s on hold for now.

– What are my sources of income? –

Most of us mortals rely on a salary that we receive fortnightly. How much is my take home pay? We all know by now that 18k on the contract doesn’t really mean 18k in the bank monthly. How much do I get after all government mandated deductions?

If you have a sideline, list it down too. Do you earn from blogging? Do you have an online shop? Do you bake cakes and sell them?

List down all of the ways you make money, and how much you expect to get regularly. List down when too.

– What bills do I pay regularly, when, and how much? –

Make a list of the bills you pay, how much you usually pay, and their due dates.

I pay the following bills regularly:

1. Electricity
2. Mobile phone
3. Home phone
4. Three credit cards
5. Cable

How much do those bills amount to? If needed, is there any way to lessen the cost?

– How much do I spend in a day/week/month? –

Unless you already regularly take note of every single expense, you will need time for this exercise. I used to write all of my spending but I stopped it. When I decided to right some wrongs in my life again last year, I turned the habit back on.

No matter how big or small the expense, record it. You don’t only need to know how much your expenses are, but what you’re spending on.

My biggest expense, after the bills, has been on food. When I did this exercise I controlled my spending so I didn’t buy any clothes or shoes. Since then, I’ve had to account for budget for those things too. In the real world, I am still building a good wardrobe, clothes and shoes for my size cost a lot.

– What are my seasonal expenses? –

These are things you don’t spend on daily or weekly, but you  know you spend on it – birthday gifts, Christmas, back to school, car maintenance, etc.

Though I don’t spend on these monthly, I need to factor them into my monthly budget so that money is set aside for the time they are needed.

I did this a few months back and realized how much is the minimum amount I need to go through one month of expenses. If I were to go into my own business, I know how much salary I will need to make in order to make ends meet. Or how much more the boyfriend needs to earn in order to support both of us.

My list may not be comprehensive. Basically, you need a very clear picture of what you have, right here, right now. Only then can you move forward with a solid plan to get to where you want to be.

How are you doing thus far? Let me know how else I can improve on this post, but rest assured another one is coming up soon!

Personal Finance–Financial Goals

verabear Financial Freedom 14 Comments

Failure to plan, is planning to fail. Which famous person said that? I don’t remember, but there’s much wisdom in those seven words.

It applies to many things, financial matters included.

A few months ago, a newsletter at work carried an article on productivity and time management. The author talked about budgeting time, in the same rules espoused by YNAB – You Need A Budget for budgeting money. I got curious, so I ran a Google search on that system.

YNAB has four basic rules:

Rule 1: GIVE EVERY DOLLAR A JOB.
Rule 2: SAVE FOR A RAINY DAY.
Rule 3: ROLL WITH THE PUNCHES.
Rule 4: LEARN TO LIVE ON LAST MONTH’S INCOME.

We’ll discuss these rules at a later time, but let’s start the conversation with something even more basic.

Financial blogs, and other literature, would normally advise you to start your journey to financial freedom by either inspecting your current resources, or setting a budget. I know that it isn’t as easy as it looks like – at first. Budgeting really just became easier for me once I had decided what my financial goals were – both short-term and long-term. I guess it was easier to come up with and stick to a budget once I knew what I was doing it for.

Purpose.

Having a sense of purpose was what made it click for me, maybe it will have the same effect on you.

What are my financial goals? Here are some.

– Payoff debts – credit cards, medical loan, housing loan, car loan (from my parents)

– To truly live within my means – means being able to pay off credit card bills in full each month, or not having to pay on credit at all

– Build up my emergency fund

– To not have to worry if I or a loved one gets sick and medical expenses are high.

– Be able to fund my hobbies and various interests

– To fund a wedding without getting deep in debt

Being able to list my goals made it easier to decide on what to give up, or what to spend less on. I could easily make sacrifices because I knew what the sacrifice was going to be for.

Of course, proper goal setting is more than just creating your wish list. It’s a good start though. Honestly, that list above is really more like a wish list. What would make it a real set of goals? It’s to further examine each wish and be SMART about it.

SMART. As in –

Specific – How much of an Emergency Fund do I need? How long will it take to build it? Here’s where we determine the cost of that goal (or achieving that goal).

Measurable – This one is easy, we are talking about money after all. This can mean deciding how much needs to be  What’s hard to measure are goals like “peace of mind” or “freedom.” We need to assign a value that can be measured.

Attainable (or assignable) – Self explanatory. It needs to be achievable in your lifetime. You shouldn’t have to defy physics or kill yourself to hit your goals.

Realistic – Again, if you’ll have to borrow money to accomplish your financial goals, then you’re not being realistic.

Time bound – What’s your target date?

So my SMART Financial Goals are still a work in progress. But examining them has allowed me to really start my journey to financial wellness. I still make mistakes, and I don’t always stick to the plan, but I’ve found it easier to get back on track.

What about you, have you decided what your financial goals are? Let’s chat!