Our next step of the 100 steps mission to financial independence is to set yourself a goal for what you would like your net worth to be in six months. This gives you an excellent target to work towards to during the mission. Although you’ll probably find that your net worth doesn’t change dramatically in this half a year, 6 months is a good time frame to start with as it is long enough to see substantial changes and the effects of goal setting, yet short enough not to forget about it or lose track.
You can set yourself a goal for your net worth by either stating a specific amount, or alternatively by setting a percentage by which to increase your income. If you set a specific amount as your target and keep that the same every six months, with time as your net worth increases and as it should become easier to achieve the same target, you might not be achieving as much as you could. Alternatively, if you set yourself a target of certain percentage increase it means that your net worth target increases more as your net worth itself increases.
In this 6th step, you are going to determine your overall financial starting point by calculating your net worth. I know the words “calculate” and “net worth” might be putting you off, but this step is a lot easier than it might sound, as we have already done all the preparation work in the last few steps by digging up financial statements and creating our assets and liabilities lists in step 4 and 5.
Your net worth basically indicates what would happen if you decided to sell all of your possessions and pay off all of your debts today: would you any have money left over or would you still be in debt? How much money would you have left over or how much money would you still owe? Your net worth is an easy sum of your total amount of assets minus your total amount of liabilities. Continue reading →
Now we know exactly what our debts (or liabilities) are, in this step we are going to look at what our possessions (also known as assets) are. Assets add a positive value to our financial status: they are the things that we own and therefore add a positive value to our balance sheet.
Making an overview of all your assets, will not only allow you to know exactly how much you own at present, it also gives an insight into what you might be able to do in order to increase the number or value of your assets, thereby increasing your financial value.
Now that you’re happily (?) tracking away your expenses, which we know will take a while to keep doing before we have a solid, reliable list, we are going to continue with other steps we can take in the meantime. To start with, we are going to pull up an overview of any outstanding debts – also known as liabilities – you have. Sounds like fun? No I didn’t think so, thinking about your debts is usually not a lot of fun, but since your debts are probably also one of your biggest worries or financial strains anyway, we need to find out how bad (or not) the situation is to begin with.
Borrowing money is a relatively common thing in our current society and although it might sound like a great way to finance big purchases, the problem is that as long as you have debts, you are not only tied to paying back money all the time, you are furthermore consistently losing money. Borrowing money comes at a high price: the interest that you are charged can been enormous and in later steps we’ll look at how quickly this interest can add up to massive extra charges. Yet we seem to always be borrowing money these days, first to get through college, then to buy a car, a house, that fancy holiday and it becomes more and more of a habit to buy first and finance later. And kid yourself not: unless you are paying off your credit cards in full at the end of each month, the overdraft on any of these cards are loans too! Continue reading →
Now that you have your goals clear of where you would like to get to financially, we are first going to look at what happens to your money and how you are spending it. Once you know what your current spending patterns are, you can evaluate whether they align with your financial goals and whether you need to set aside more or less money for your goals.
Obviously your spending changes from week to week and month to month as you don’t always need new clothes, a car that needs fixed and even your weekly shopping bill is different every time you go to the supermarket. Therefore, in order to find out where your money goes, you are going to track your spending. By registering your expenses you are furthermore becoming more conscious of spending your money, which is likely to result in a slight decrease in your expenditure in general. 🙂
One of the most important steps you can take towards becoming financially independent is making clear what your goals are. There is nothing more powerful than having a specific end objective that you are working towards to. Without stating your goal it is easy to give up after only a few initial attempts as you forget why you started this journey in the first place and because you have no way of measuring whether you are any closer to your target.
Numerous studies have furthermore shown that if you write down your goals you significantly increase your chances of ultimately achieving them, with some studies saying the likelihood of success increases by as much as 50% or more. So it is definitely worth stating your goals if you want to really achieve success on this mission! Continue reading →
It’s exciting times as we are about to embark on our 100 steps mission to financial organization and independence! Or better said: as we have embarked on our mission, as this is our very first step! I hope you’re as eager to start and get your finances under control and set yourself up for successful money management as I am!
I’ll be here to help you along the way and to walk you through the 100 steps that will help you achieve your goal, doing just 1 step at the time. With every step you will feel more and more in control of your finances, as you organize yet another small part of your current, past or future finances. When we get to the end of our mission, you’ll be a finance ninja, managing your money responsibly and you should be well on your way to financial independence. Continue reading →