In my personal opinion, developing financial self awareness is the single most important step in being able to manage your finances effectively.
Having financial self awareness means:
- Knowing how much you are spending and making every month. Do you think successful business owners can run a business without knowing what their profits and losses are each month?
- Knowing how much debt you have. How do you expect to pay off your debt if you don’t even know how much money you owe? This includes credit card bills, student loans, your line of credit, mortgages, etc.
You can start this process by adding up everything you owe to figure out exactly how much debt you have. Make sure to write it down somewhere! (I personally like to use google sheets to track all my financial stuff). Make sure to be precise – add up everything to the dollar, no ballpark numbers! If you have no debt then good for you. You can write down how much money you have saved up (bank account, RRSPs, investments, etc.)
The next step is to track your income and spending for a month. There are many apps now that can help you track this, but if you aren’t a fan of apps, you can simply write it down on a piece of paper or on google sheets. This exercise serves 2 purposes; first, it gives you an idea of your spending habits (most people are surprised by how much money they are spending each month on useless things). Second, it helps you figure out how much money you actually took home that month after deducting the total amount you spent from your income.
You never want to spend more than you make right? Obviously there are circumstances or months when you do spend more than you make such as when you travel, pay your car insurance in full, etc.
Once you develop financial self awareness, you’re already ahead of a lot of people and you’re ready for the next step – budgeting!
Finance101 