Know your numbers, such as:
- your income (what you earn)
- expenses (what you spend)
- debts (what you owe), and
- assets (what you own),
Knowing your numbers is the first step in sorting out your finances because it provides a clear picture of your current financial situation. Without this knowledge, it is difficult to create an effective financial plan that is going to help you achieve your why.
When you know your income, expenses, debts, and assets, you can understand your cash flow, which is critical to managing your finances effectively. You can identify what it costs you to live, and areas where you may be overspending or where you can cut back on expenses. One of the key aspects to any financial plan is ensuring that you are spending less than you earn.
Additionally, knowing your assets and liabilities can help you determine your net worth. Net worth is the difference between your assets and liabilities and is an important indicator of your overall financial health.
Overall, knowing your numbers is one of the key foundations for financial planning. It helps you understand your financial situation and identify areas for improvement. With this knowledge, you can create a financial plan that is tailored to your needs and goals and take steps towards achieving your version of financial freedom.