During this time of year, many people are looking to become physically fit for summer, but what about getting financially fit?
When it comes to getting financially fit, the first steps are the most important. This is because the first steps require you to stop running from your problems and start facing them head on.
So, if you wish to improve your financial fitness, you need to start by checking your vitals and seeing where you stand. This doesn’t mean you need to tackle everything at once, but you should start by getting a holistic view of your position – namely, understanding “money in” and “money out”.
You may be asking what vitals you should be checking at this stage. Some might include:
Income vs. Expenses: This is probably the most important vital you should be checking. Are you spending more than you earn? Don’t forget to include every little expense you make. For example, if you buy a bottle of water or a pack of chewing gum, include it in your expenses. These frequent, little expenses can be what is causing your finances to get out of shape.
What you own vs. what you owe: Is what you are worth increasing over time? Add up your assets like property value, cars, savings, investments, home contents and super. Then, subtract what you owe like your mortgage, personal loans and credit card debt. Drawing a line in the sand and understanding what you are worth can be eye opening. Revisit this calculation periodically to see how this changes.
What is “bad debt” costing you: if you are paying the minimum on your credit card or have a car or personal loan where you are only paying the minimum, take a moment to see how much you are paying in interest each month. Wouldn’t that money be better in your own pocket? Start devising a plan to accelerate your repayments to get these debts paid off quicker.
Tax returns: This is a good time to check if your tax returns are up to date. You could be missing out on a significant amount of money if they’re not. Or, if you are avoiding doing your tax for fear of having a liability to pay - it is much better to know your position than bury your head in the sand and imagine things to be far worse than they really are.
Paperwork: Regularly losing bills and other financial documents is a sure sign that you need to create a better filing system. Try a few different filing systems to see which one works best for you and set reminders to ensure bills are paid on time.
Remember that you might surprise yourself when it comes to organising your money. Just like getting physically fit, you may have your ups and downs along the way, but if you are persistent and determined you can start to see the light at the end of the tunnel pretty quickly.