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Calculating your net worth is the best way to start and to gauge your current financial health. Next, break this down further into what you earn and what you spend.

Article by Akwasi Duodu

Have you ever spent a good while looking for a bunch of keys only to find they’ve been in your pocket all along? I certainly have! Some things are so obvious it’s hard to see them even though they may be right in front of you. Managing your finances is no different. Here are some no-brainers that may seem obvious but are worth being reminded of.

1: Pay down your debt

Driving with the handbrake on and building a castle in the sand are all good sayings describing trying to plan financially when in debt. Especially with short-term debt such as a loan or credit card debt. As a rule, that kind of debt is not good. While the best strategy is to avoid debt to begin with, that isn’t always possible. Paying down debt is no fun, but it’s futile trying to get a return on your investment while paying significant interest on your debts. Pay them down.

2: Know where you are

Imagine trying to get to a location on a map without having any idea of your starting point. This may seem obvious, but if you have no idea where you are now, getting to where you want to be may prove impossible. The same applies to your finances. If you don’t know where you are financially, planning where you want to be next year, five years from now or decades down the road could be extremely challenging.

Calculating your net worth is the best way to start and to gauge your current financial health. This is simply done by calculating what you own and what you owe and making a note of the difference. Next, break this down further into what you earn and what you spend. Once you have answers to these two questions, you can decide whether you are on or off track and what to do about it.

3: Know where you’re going

Knowing what you want comes easily for some but is more difficult for others. The easiest way is to think back to where you were a few years ago and compare that to where you are now. Have you made any progress? Close you eyes and visualise yourself in the future. Think short term, medium term and long term. It’s important to be realistic – we‘d all like to win the lottery but that’s unlikely to happen.

4: What are the possible ways of getting there?

Once you know your net worth, income v expenditure and your financial goals, you can start planning how to achieve them. Can you do this without help and guidance? Financial planning is fraught with danger and getting it wrong could be expensive. Doing it all yourself may be cheaper in the short term but what about the long-term consequences? Engaging a financial adviser to assist with your goal setting and financial planning may be a good idea, as most financial advisers have software and tools to make complex calculation on your behalf. More importantly, using a regulated financial adviser would protect you if things ever went wrong.

5: Review your plan

Your circumstances will change, the world will change, and markets will change – just as we’ve seen with the recent pandemic. Your financial goals may not change but your financial plan will need to adapt and evolve as you and the world around you evolves. Working with a financial planner as a mentor or sounding board will help you to remain objective and keep your plans on course.

Forming a long-term trusted relationship with a financial planner will also give you the peace of mind that a qualified professional is taking on many of your financial stresses. You won’t need to regularly check the markets or worry about your wealth; your adviser will do this all for you giving you the freedom to live for today knowing your future is taken care of. Sounds like a no-brainier to me.

 

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