The first step in taking control of your finances is to understand your current situation. To do so, we need to dive into the basics below and I will ask you to provide a summary of your Savings, Debts, Income, Monthly Budget and Financial Goals. Let’s call this your Financial Report Card. This is an exercise that can be completed on a single piece of paper, or if you are familiar with excel you can log it on an excelsheet which will make for better storage and future comparisons.
I want you to collect all of the data below on the exact same date. For example, if you decide “Hey, I want to try this FI Builder Boot Camp, i’m going to start today” then you would collect ALL the data below on that specific date. Looking at the cash in your bank account, logging into your credit card accounts online and checking the current outstanding balance. We want to know exactly where you stand at a specific point in time. This will help determine your current Net Worth. This is an exercise that you will learn to complete at the end of each month to perform a simple check-up on your financial status. After some well learned muscle memory (mostly saving links on your laptop) it’s a task that can be completed in no more than 5-10 minutes.
The first time you go through this, it may take you a few days to collect all the information, login details / lost passwords, etc. The first time I did this I spent hours in a coffee shop tracking down old account numbers for investment accounts and an old pension accounts from previous employers. It takes a bit of work, but it will be worth it. Let the Boot Camp begin (whistle blows and an Army sergeant begins yelling at you until you’ve complete the below).
Savings and Investments – Includes cash (both in the bank and under your mattress), Stocks, Bonds, Pension savings (Registered Retirement Savings Plan or Employer Sponsored Pension Plans), Tax Free Savings Account (TFSA), Real Estate Equity (in your home or rental properties), crypto, etc. For my friends in the UK this also includes your Investment Savings Account (ISA) and Lifetime ISA.
Debts – Credit cards, Line of Credits, Mortgages, Student loans, Car payments, any other form of financing or IOU’s.
Mark down the interest rate that is being applied on each debt. This is an important step that cannot be skipped as we need to know how much you are paying in interest to the bank and credit card providers. If you have $10,000 credit card debt that is charging 24% interest, then you need to immediately consider building a plan to pay this off. Incurring interest on credit cards at those rates is a dangerous and costly situation. The goal of this process is to highlight high risk areas that are hurting you the most financially. Once we have a clear breakdown of all your debts and the interest rate you are paying on each debt we can then prioritize how and when you should be paying these debts off. We will need to understand your monthly budget and income to do this, carry on below.
Income – Salary (monthly, or if paid hourly write down your monthly average), Bonus, stock options, Pension contributions from employer (find out your maximum contribution from your employer, this is one of the best ways to grow your retirement savings), passive income (rental properties, dividends, etc.) allowance from your grandma, etc.
Monthly budget – This will likely take the most time out of all the categories. The best prediction of future behavior is past behavior. Finding out where your money is going is a psychological hurdle that needs to be overcome. You would be surprised by the amount of people who do not know where they spend their money. We now have various technologies that will consolidate all of this data at the touch of our finger tips and there is no excuse to leave ourselves wondering at our own detriment.
See my post “Build your Monthly Budget” which provides in depth categories and tools to categorize your spending.
This exercise needs to be fine tuned month by month until you are able to create a monthly budget that you can standby. With the free apps that I recommend in the post above, you can quickly review your budget at the end of the month within 10 minutes. The average consumer has more than 70 payment transactions per month. Using technology is massively important here unless you’re a whiz on the calculator and like spending lots of time look at statements from various debit and credit cards, the app will save loads of time.
Financial Goals – This is where you get a chance to tell me (or keep them to yourself if you’re going it alone, I don’t mind) what is most important to you. Becoming debt free? Saving enough funds for a down payment on a home? Saving for retirement? Maxing out your Tax Free Savings Account? Amassing $100,000 or $1,000,000 in investments to build your path to financial independence?
The purpose of this program is to help people become financially independent and to educate. Once we understand your current situation and your ambitions for the future we can assess the best way to build an action plan to achieve your goals.
*Whistle blows* Good work Soldier. You’re still with me? I suppose you may actually want to take control of your finances after all if you’ve gotten this far. Good work, but i’m not impressed yet and you’ve got lots of work to go. Nobody said Boot Camp was suppose to be easy. Now you’re probably asking yourself, why doesn’t FI Builders have an easy to use tool where I can log all this wonderful data so I don’t have to write it down on a napkin at my kitchen table? Your Answer? We’re working on it, watch this space.
NEXT STEP – Financial Planning
We’ve now understood your income, spending and saving. We have laid out your goals and prioritized which goals are most important to you. Now the fun begins. We can build a forecast of where you could be financially in 6 months, 1 year, 5 years, or 10 years time. If you are not so keen on spending hours in a spreadsheet like me then fear not. I am building an easy to use spreadsheet that will be available to you free of charge, bear with me whilst I work on the website development and learn the tools to post excel workbooks on my site! I will post the link once available. In the meantime, continue reading the other posts as they’ll continue to help you build your financial plan.
Basic Training completed, congratulations! You’re onto the next step in the program where you’ll become a lean, mean budgeting monitoring machine. A reminder that you should be excited to embark on this journey, in 1 years time you’ll look back and wonder why you didn’t start earlier. Hindsight is always 20/20 so make the best of each day you have in front of you. You’re one step closer to achieving your goals, stay hungry!!
See below Link for the next stage of the program!
Build Your Monthly Budget