Where to Get Started?

As we have highlighted in recent newsletters, Money Planning is a critical factor in achieving your goals and dreams, and the earlier you get started, the better the outcome is likely to be.

So, where to begin?

Like any other form of planning you may do in life, Money Planning involves the three basic steps of knowing where you are now, knowing where you want to be (and when), and deciding on the best way to get from here to there.

In many planning situations, the first step, knowing where you are now, is taken for granted.  For example, if you’re planning a holiday, you generally know you’ll be starting from home.  In Money Planning, however, very few people have a clear and complete view of the current state of their personal household finances, so getting this information together is the essential first step.

We begin by looking at the four key dimensions of Money – what you earn, what you spend, what you own and what you owe, or, in more technical terms, Income, Expenditure, Assets and Liabilities.

In a business environment, information about Assets and Liabilities would be captured in a Statement of Financial Position (previously known as a Balance Sheet) and information about Income and Expenditure would be recorded in a Statement of Financial Performance (known as a Profit and Loss Statement).

For a business, this information must be recorded in a way that complies with Accounting Standards, but from a household perspective, it isn’t all that important how this information is recorded.  You could use anything from pencil and paper, to a simple spreadsheet, to a fully-fledged Accounting software package – the main thing is that the information is clear and complete and provides you with the information needed to begin preparing your Plan.

The types of information that would be needed would include:

• your salary and other income
• a rough idea of the amounts you pay on regular bills, such as Council Rates, Water, Electricity, Gas, Phone, Internet, House and Contents Insurance, Health Insurance, Life Insurance, Car Registration and Insurance, etc.
• an estimate of your other spending, including
• food and groceries,
• other household costs ( e.g. furniture, furnishings, maintenance ),
• vehicle costs ( e.g. petrol, maintenance, parking, tolls ) and
• lifestyle spending ( e.g. dining out, entertainment, clothing, medical, sport and hobbies, pets, gifts, donations, etc. )
• the approximate current value of your Assets, including
• Family Home,
• any Savings Accounts or Mortgage Offset accounts,
• Superannuation Funds, and
• Investment Property and other Investments
• details of any current Borrowings, including
• Mortgage,
• Credit Cards,
• Store Cards,
• Personal Loans, Car Loans, etc., and
• any money borrowed for Investment purposes.

Most people can track down information about their Income and Borrowings, and make a reasonable estimate of the value of their assets, but the real challenge is in estimating what you spend.  One approach is to track your spending over a period of time, and again the tools for doing this can range from basic to quite powerful.

At Empower Wealth, we have developed a simple yet powerful tool to capture all the information needed to give you a clear picture of your current financial position.  We’ve answered your question on where to get started but one way to get started with Money Planning is to book a free one hour consultation with us, where we can demonstrate the range of tools we have developed to assist with this vital task.