Why knowing where you are financially is important

It gives people a basis for comparison. For instance, by knowing exactly how much you are getting paid allows to check if you are getting paid a similar amount to others in your industry or if your wage is set by one of the industrial awards, that you are getting paid the correct amount.

It lets people know how they are tracking. If you have set yourself some goals, it’s impossible to know if you are on track to meet them without knowing where you started and where you are now. We’ve talked about budgeting in earlier blogs, so if you are saving up for that holiday, new car, house deposit, school fees etc, by checking your savings account balance you’ll be able to see how you are going. Are you on track to reach your goals or do you need to change the plan.

Knowledge is power, it allows you to move swiftly and make effective decisions about your actual circumstances. You won’t need to play a guessing game and hope that the decision you make is the right one.

If an investment opportunity comes along, by knowing exactly where you are allows to take action to secure the opportunity with minimal fuss. Often to take advantage of an opportunity you’ll need the help of a bank loan. Lenders have tightened up their lending policies and require more information now. Being able to put your fingers on the information they require quickly and easily will work in your favour.

If the Govt changes the rules on budget night – you’ll be able to see what the impact on your situation is.

It will save you money – having all the information together and readily accessible will save you at tax time, it will save you in accounting fees and if you have all your receipts in order you’ll be able to potentially get a bigger tax return!

You’ll know what to insure – knowing what assets you have and their value gives you a list to check off each year to make sure everything is insured and at the correct value.

We tell our clients there four basic areas of your finances that you should know:

What you earn

What you spend

What you own

What you owe

What you earn - For many people what you earn should be pretty straight forward, it should be set out in your employment contract and you can check your pay slip/bank account each week/fortnight/month.

For people who are self employed this may be more difficult as many don’t take a regular income. But if they can managed it, working up to taking a regular income from the business will give more certainty. Self employed people will be able work out their income from past year tax returns and bank statements.

Don’t forget to keep all your receipts that relate to earning your income, use these at tax time.

What you spend – the $64 million question. This is usually the hardest of all to work out. By knowing what you earn after tax can help you figure this out. You simply have to minus off any savings you make each pay/month etc from your take home pay and this will give you what you spend.

For some people this figure will be a minus. If you have outstanding balances on your credit cards, this means you are spending more than you earn. There are only two ways to fix this, spend less or earn more.

What you own. For this, list all your assets, cash at bank, shares, superannuation fund/s, managed funds, property, cars, boats, bikes, stamp collections, wine collections etc List their value and the income you receive from them. Eg interest, dividends, rent etc. when does it come in, weekly, monthly quarterly. Knowing all the details of your super policy, will give you an idea of whether or not any proposed super changes will affect you.

List all your insurance policies too (including the insurance held through your super fund), both the ones on yourself and the ones over your assets.

Who actually owns each of the assets, do you, or is it your partner, jointly or is it in a trust.

What you owe, what are your debts, and to whom do you owe the money and what is cost of money. Include personal loans from banks including the bank of mum and dad, credit cards, mortgages, investment loans, car leases, equipment leases, leases on buildings.

Also with the loans, list all the interest rates and repayments for each of the loans. When is the lease up, when is the interest free period up.

You want to have a really clear picture of where you sit, you might be pleasantly surprised by how much you have achieved financially already.

Where do you keep this information:

Paper based – have a folder for each of your investments/loans so you can find the information quickly.

Electronically - same, separate folder for each investment/loans just that everything is stored on your computer. Don’t forget to back it up though!

  • Use a spreadsheet

  • There’s an app for that, do some research and find out which app/s suits you best.

Finally your wills and enduring powers of attorney. Firstly make sure you have these and that they are up to date and knowing all the above information will help you draw these up with your solicitor. Let your executor know where the wills are kept and how to get in touch with the solicitor.

Need some help in getting your finances organised call us on (07) 3018 0587.

This advice is general in nature and doesn't take into account your personal circumstances. For advice that is specific to your circumstances please give us a call on (07) 3018 0587.