January is a great time to reset and get back on track. If you've let your financial health slip, the new year is the perfect time to take control. Here we walk through 3 easy steps to get your financial health on track in 2020.
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Understand your 'why'
Take the time to understand why you're looking at your financial health. Yes, it's important that you do, but what is the end goal? It could be to build your net worth, organise your assets for retirement, save for a house deposit, or a hundred other reasons. Understanding your goals and priorities will help you take control of your financial health.
Your goals and your current financial state will determine what action you should take to get your financial health on track. If your goal is to build long term wealth, you will likely consider investing in high growth ASX shares. If your goal is to generate income, you will likely look to high yield ASX dividend shares.
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Figure out what you're working with
It's important to understand where you stand, financially. Set aside some time to take stock of your financial position. Work out your assets, such as property, shares, or other investments. Then work out your liabilities, such as mortgages, credit cards, and personal or car loans. Subtract your liabilities from your assets to get your net worth.
The next step is to work out your income and expenses. Work out how much money you receive from all sources over the year. Divide this by 12 for your monthly income. Then work out your expenses. You can go over your bank or credit card statements to do this. Don't forget about occasional expenses such as car registration or annual subscriptions.
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Set your parameters
Once you know how much you're spending and how much you actually have to spend, it's time to set some guidelines. Ultimately, your financial resources are finite. By choosing to buy something, you necessarily forgo some other thing at some other time. Your spending is, therefore, a reflection of your values.
Think about how you would most like to use the financial resources available to you and sketch a plan based on this. This may involve reallocating or cutting down some of your current spending. Try allocating your income between different categories of expenses. Allocate a proportion of your budget towards your goals and stick to it.
Foolish takeaway
The start of a new year is a great time to take stock and take control of your financial health going forward. Like taking care of your physical health, taking care of your financial health is a long term endeavour. By getting your financial health on track this year, you are setting yourself up for a healthier financial future.
