- Measuring where you are now
You know the expression “you can’t know where you are going, if you don’t know where you have been.” Nothing could hold more truth, in relation to your personal finances.
If you don’t know your key money numbers (your net worth, monthly cash flows and several others), learning how you need to proceed forward in a helpful way is made more difficult.
If these calculations are properly determined they will tell you: what you have now (assets), what you owe now (liabilities) and what you have retained (equity). Further, the money that you earn and spend will be uncovered in detail, which will give you the extended information of what you can save, debt you can either pay-off or your capacity for new debt and serve to indicate if you have the funds to give money away and/or invest.
These questions are not easily answered without a proper look into your personal financial information and then suitable conclusions and decisions made from them.
- Establishing your priorities
Prioritizing what you need and want from your money is not always easy.
There needs to be not only the “hard numbers” of your personal money situation but also some thought about your feelings towards money and how you think about it. For example, some of the questions that your advisor should include deal with:
- What are the most important things in your life?
- What do you want and expect for yourself and your money?
- What do certain purchases bring to your life and are they worth it?
- How best should you manage your time to get the most from it?
- What money habits do you have that are not good for you?
- Do you really understand the inner workings of money and how it affects you?
- Making suggestions to reach your money goals
Although this could include a variety of methods, it should be one that is:
- Realistic for your current situation
- One that honours your future desires and goals
- Doesn’t impose on who you are and what you are about
- Doesn’t make demands but rather, works with you to move you forward and build momentum
- Not a “cookie cutter” approach to your personal finances, that so many advisors promote