On the first Saturday of each month (or whatever day you do your Weekly Review, I do a monthly financial review. It normally takes me another 30 minutes or so. This is where I record my Cash-flow Statement into an A4 notebook. I strongly recommend you start to do the same; I now have monthly Cash-flow Statements going back to 2006.
The purpose of this is extremely important; this is where you will see if you are getting wealthier or poorer. Put the previous month & year at the top of the first page, then divide the page into four equal segments. In the top left write – Income.

Top left is – Income.

Top right is – Expenses

Bottom left – Assets

Bottom Right – Liabilities.

1. Income

In this segment, record all income for the month, by total for each category for example Salary and Wages, Bank Interest, Dividends, Refunds, Gifts. If you are using a software or on-line tool, this will total everything up for you and take the donkey-work out of it.

2 .Expenses

In this segment record all expenses you have incurred, again by total for each category for example Mortgage, Groceries, Child Care, Leisure, Transportation etc.

3. Assets

Record every asset you have as of the last day of the month for example Bank and Cash, Investments, Shares, Pension amount, Property Investment etc. You will have done this already, to establish what state your finances are in. Now you will repeat it every month. There is no need to list all of your possessions again, unless you have bought or sold a major item; Just use the figure from the original exercise.

4. Liabilities

In this segment record each liability for example Credit Card, Loans, Mortgage From this you will be able to work out the following indicators of your wealth.
In the space below the table record the following indicators:

5. Net worth

This is simply a sum of your Assets minus any Liabilities. Your aim is to get this number into the positive and increase it.

6. Real net worth

This is Your Net worth not including your house and mortgage (as you have to live somewhere).

7. Current net worth

This is Current Assets minus current liabilities. As I said before, current Assets are things like bank and cash or any investments that you could turn into cash quickly. Current Liabilities would be things that are due soon like credit cards, but not long-term debt like mortgages and loans.

Control Your Expenses as Your Income Increases

If you perform the exercises above religiously every week and month you will begin to get a real handle on your money. As your income increases you will be able to ensure that your expenses don’t spiral as well. You will also be able to budget better and spend only what you intend.
Okay I admit it may take you years to achieve financial freedom, but as my Mum says,
“Those years are going to pass anyway, so you might as well make a start.”

The post Monthly Financial Review appeared first on Mike Holden Sales.

What is the State of your Finances Now?

The old adage is that what gets measured gets managed; how could you possibly become financially independent if you don’t know what the state of your finances is, now and also have plan to track your income and expenses. Businesses that don’t manage their money go bust and you are no different. So here are my steps how to get a real handle on your money situation.

Establish what state your finances are in now

Where are you now financially? Do you know what your net-worth is? Could you say how much you have in the bank? Do you know exactly how much you owe on your credit card? If not, don’t worry, as this will change for good. From this moment on you will never again be in the dark. So before you start, allocate a couple of hours, when it is quiet, for this job.

1. Your Quick Net-Worth

First, we will calculate your Quick net-worth. This is all of the money you have, that you can get hold of quickly, minus any debts that are due within a month. So go and get your bank savings and current account statements (if you bank on-line login).

Record all of your current balances whether in its a positive number or in arrears.

Next, get your latest credit card(s) statement(s). Again record the current balance owed. Then get your purse, wallet, loose change and add up how much change you have.

Do you have any investments, like shares, that could be sold quickly? Add these to the list. Is there money in your pay-pal account or any other online account? These should go on as well.

Now calculate your total quick net-worth. This is how much money you have now, minus any debts.

Example:

Quick Assets
Bank & savings accounts – £1,261
Cash – £51
Paypal account – £63
Skybet account – £60
Premium Bonds – £100
BT Shares – £1,000
ISA (Equities) – £2,152
Total – £4,687

Quick Liabilities
Credit Card – £3,082
Store Card – £555
Total – £3,637

TOTAL QUICK NET WORTH – £1,050

Why should you bother with the quick net worth calculation. After all it is not your total net worth. Well, its important because this the amount of money you have to survive on if all your income stopped. We will also use this figure later to work out how long you could survive without any further income.

2. Total Net Worth

This is exactly the same process as with the quick net worth exercise, but this time we record everything.

Firstly go and get your Pension statements, or if you can go on-line, record the value of you pension funds.

Next record all of the values of any long term investments, like notice accounts, insurance policies or mutual funds.

Do you own your own home? Then record the price of your house. This would be the fire-sale price, if you had to sell it right now. You can go to rightmove.co.uk and find out what houses in your area have sold for. Remember to go on the Sold Properties tab to get the true value.

Next is a laborious, but if you are serious you will do it. Go around you house and list every single thing that you own. If it’s clothes, just put down clothes on your list, unless you have a particularly expensive item. Same with books, dvds and cds. Just list them as a single item ie 200 books. Include everything from furniture, electrical items ornaments, jewelry – everything. Now go down the list and put a number for the value next to each item. Again use the fire-sale price. By the way, this is a useful exercise, anyway, to see if you are properly covered for contents insurance.

Now for the liabilities. List any loans, or other longer term debts, like deferred payment plans. Put down what you owe on these. If your house is mortgaged, then add the remaining balance to the list.
Now add it all together, as with the quick net worth example.

Example:

Assets
Bank & savings accounts – £1,261
Cash – £51
Paypal account – £63
Skybet account – £60
Premium Bonds – £100
BT Shares – £1,000
ISA (Equities) – £2,152
Pension 1 – £55,625
Pension 2 – £31,968
Home – £220,000
Total Possessions – £5,500
Total – £317,780

Liabilities
Credit Card – £3,082
Store Card – £555
Loan – £11,000
Mortgage – £98,000
Total – £112,637

TOTAL NET WORTH – £205,143

So how are your finances? Are they positive? If yes great, if not, we will start to look at ways to change this around immediately. Look out for the posts in the next coming days, or sign up for regular updates above.

Next though we will learn the next critical step, which is to create an income and expenses tracker.

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