Are you aware of your financial health?
Do you know what your current net worth is? Have you set any financial goals? Deciding that we want to manage our money better or become a millionaire is the same as setting new years resolutions we never stick to. Without a plan in place we will never achieve our financial goals. The best place to start is to assess where you are, with this information you are able to clearly define where you want to be and how to get there. Today we will show you how to assess where you are financially so that you may set better financial goals for yourself.
1. Net worth
Your net worth is calculated by taking all your debts and deducting them from your assets. Assets can include houses, cars, savings, investments etc. Some banks also offer their feature in an app.
Let’s say you own a home worth R750 000 but you still owe R500 000 then you would minus what you owe. R750 000 – R500 000 = R250 000
2. Debt to income ratio
Now that you know what you’re worth you should calculate what is going to your debt every month. To calculate you would add all your debts and divide it by your income. Let’s say you earn R10 000 a month and have the following payments:
Credit Card: R500
Home Loan: R2500
Personal Loan: R300
Your total debts would be: R3200 ÷ R10 000 = 0.32 x 100 = 35%
The recommended income to debt ratio is 30 percent or lower. Now you have something to action, you can now aggressively start paying off debts to get your ratio below 20%
3. Be honest about what you’re spending
The biggest mistake most people make is thinking they are spending wisely everyday. We tell ourselves an extra coffee might be a great idea but if we had to keep track of every cent in and out you would see what areas can be improved. They best way to tell what you’re spending and where you can improve is by keeping a journal for every cent spent. Write down every expense for 30 days. At the end you can categorize each expense to see how you spend over the month. You may be surprised at how much extra you spend on items you might not need.
Once you have tracked your spending you can create a budget that suits your needs. This budget can help you save more or pay off more debts. Start building towards your financials goals.
Most people only save what they have left. Retirement is always looming above our heads and unless you started a savings plan when you were very young you might be a little stressed about the future. It is never too late to start saving towards the future. You have a clear indication of where you are financially and it’s time to start budgeting your savings. Determine what you need by speaking to a financial advisor or you can use financial companies to calculate what you need and how much you need to save each month.
5. Set financial goals
You now have everything you need to start creating goals for your family and yourself. Start putting money aside for university or retirement, get out of debt. There are so many goals to action. Once you have your goals you can start putting plans into place to get you there.
United African Stokvel is always looking for ways to help our members. This blog is intended to help our members think about their finances in a different way. This information is not intended to be a substitute for a financial advisor, you should consult with a financial advisor before relying on this information.