Are your personal finances so disorganized that you can’t make head or tail of what you have and what you owe? How often do you sit down with pen and paper (or screen and keyboard) to take stock of your personal financial position? Do you know how much richer or poorer you are now compared to a year ago? Do you know how much debt you have outstanding? Do you actually know the interest you are paying on due credit card balances? Do you know, or are you sleepwalking through your finances?
The first step in personal finance success is not paying off debt or buying land or investing in government securities. It’s not even raising an emergency fund. It is getting organized. Simple as that.
At our workplaces, there are established policies and procedures. You know what to do when you get in. You know which reports are needed by when, you know who needs to sign on what, you know what department to approach for a particular query, et cetera. In addition, performance at your job is measured (and hopefully rewarded) by your employer at predefined intervals. There simply is little possibility to be on autopilot at our jobs. And being on autopilot at work is just begging to get fired.
When it comes to our lives in general and our personal finances in particular, unlike at our jobs, there are no rules or policies. You do what you want. You are on your own, with no weekly or monthly progress reports to submit. People generally do well where there is order. It’s no wonder then that many of us have our personal finance in shambles even while we excel at our jobs, or in other regimented institutions like school.
That’s why you will find smart and well-educated people, who are doing exceedingly well in their careers but struggling with their personal finances. It’s because nobody calls you to account for your personal finances. You are the captain of your own ship. It is called personal finance for a reason – it is PERSONAL.
It’s time to call for order in your personal finances. Some sanity. It’s a simple concept and it’s supposed to go without saying.
Imagine going to the hospital to seek some treatment. Then instead of the usual level-headed process of the doctor taking your vitals, listening to you then diagnosing your problem, they are all over the place giving you this pain medication, then checking in your ears, then taking an X-ray, then asking you how you feel exactly. That would be a disaster, wouldn’t it be? But that’s exactly how many people run their personal finance. They are applying for a loan, and considering buying land, they have a credit card balance and a mobile loan they have no idea the interest they are paying on, they are getting in a chama without clear goals, and they have no idea what their net worth is. They are all over the place.
Instead, what you should do at the onset is to sit down calmly and get a picture of your financial situation. This will usually include doing a net worth calculation. Know where you stand. You want to know how many soldiers you have in your army before you set off for battle. You want to know how much ammunition and supplies you have before you even step on the battlefield.
How will you know how well (or badly) you are doing from one month to the other if you don’t have a figure you are working with?
What gets measured, gets done. The first thing is to measure.
One thing that I do without fail each month is to track my net worth. That is looking at my debts and assets and adjusting for any changes that occurred over the past month. I then monitor the monthly result on a spreadsheet. I include a neat chart for visuals. This simple task forces me to remain on top of my financial condition including debt, expenditure and income. It brings calm and order to an otherwise chaotic world that is finances. What if I didn’t do it? Would anybody die? Would I get dismissed? The answer to all these questions is probably not, but the possibility that I wouldn’t experience any significant progress from a personal finance standpoint is very high.
Personally, I use an excel spreadsheet and visualize progress with a simple line chart. But if you are a beginner and are not sure where to start, there is an excel template by Microsoft template which you can use to create a chart for the month-to-month. We will cover some of the tools you can use to track your money and investments in future articles.