Do you know what your financial goals are? Do you understand how much money you make each month, or what your net worth is? If not, then it’s time that you started thinking about financial planning. It’s never too early nor too late to start financial planning in order to achieve financial success. In this post, we will cover 3 questions that you must answer to achieve your financial goals.
These questions are:
- What is my net worth?
- What is my monthly cash flow?
- What money am I putting toward my financial future?
What is my net worth?
Your net worth includes the assets that you own, minus all your debt. Knowing what your net worth is important for financial planning because it tells you how much financial security you have. The greater your assets are relative to your debt, the better your financial position will be to achieve your goals. On the other hand, if your debt is getting out of control then you need to work towards improving that financial position.
Think of your net worth as trail markers on the way to a beautiful vista. When looked at as a measure of progress, you can see if you are on track toward your goals or if you need to make a course correction. One of the most important things about your net worth is not to judge your net worth in comparison to others around you, but rather to focus on your own individual progress.
What is my monthly cash flow?
Knowing your monthly cash flow helps you to figure out how much money you can put towards financial goals each month and if there is money available for emergencies.
The best way to figure out what your monthly cash flow looks like is to create a cash flow spreadsheet that details your money coming in and your money going out. When you subtract your monthly spending from your monthly earning, you can see if you are in a cash flow surplus or shortfall. If you are in a shortfall, then you might have financial goals that are not achievable, or it might be time to cut down on some of your financial expenses.
If there is a cash flow surplus, then this should go towards financial savings and future financial goals. Putting money aside for the future ensures that you won’t run into financial trouble when unforeseen circumstances arise, such as an accident, illness or other loss of income.
What money am I putting toward my financial future?
It is important to know the financial goal you are pursuing. Once you have clarity on that, you will be able to easily understand if you are putting anything or enough toward your financial goals.
One of the most important things about saving and investing is starting! Saving even small amounts will add up over time. If possible, try to put 15% of what you earn toward your financial goals each month. This ensures that you are paying yourself first rather than using what is left over to finance your future goals. Your financial goals are important, but often they get sacrificed at the altar of unforeseen events and shiny objects!
It is important to ask these 3 financial questions and answer them honestly. If you don’t know the answers to any of these financial related questions, then it’s time that you start researching how they work. Knowing your net worth will help determine if you are financially secure or not. Understanding your monthly cash flow can tell you what financial goals may be achievable for now or in the future and saving money towards those goals ensures a better financial position down the line. So, take some time today and figure out where you stand financially so that you know what needs improvement! If you want to get started, here is a link to a few of our financial calculators. If you need help getting started, feel free to schedule a call with one of our team members.
