Evaluating Your Financial Position

It’s the beginning of the new year, and many of us are making New Year’s Resolutions regarding our finances.

Before working towards these financial goals, you need a starting point, a yard stick to measure your progress and your success against.

So the beginning of the year is a good time to write down your financial starting point and keep it somewhere safe. Your starting point may be zero, that’s ok, write it down anyway. If you use excel to track your progress towards meeting your financial goals, it’s fun to use a graph to track it visually.

I’ve been doing our budget and tracking financial metrics since 2005 now, so it’s really interesting putting all of these balances into a spreadsheet and charting them. You’re not just guessing at your progress, you can actually see your progress (and areas that need improving).

So what is your starting point? That depends on what your goals are and what you want to measure, but here are a few common financial metrics to track.

1. Savings

What is your current balance of your savings account(s)? Do you have an emergency fund? What is the current balance of your emergency fund? I have one account but break it up on a spreadsheet for things like emergency fund, holidays, bills etc, so I can see the overall progress and track progress for individual savings goals.

2. Investments

Do you own investments? Maybe it’s shares or property, term deposits or your superannuation (retirement fund). Write down the current balance at the beginning of the year. This may be a bit difficult with a property value, but estimate the current market value and drop it a little bit.

2. Debt

What is the current balance on your credit card(s)? Do you have personal loans or a car loan? Interest free loans, store cards, student loans, HELP, or a mortgage? Write down the current balances for all debts.

3. Liquidity

Liquidity is a good ratio to measure and improve. It’s basically how many times your liquid assets (like cash) can cover your short term debts. If all of your short term loans were called in tomorrow, would you be able to cover them? Would you have anything left over? For more information have a look at the article on calculating your liquidity.

4. Net Worth

Your net worth is a way of calculating your overall “wealth”. It reveals how good you are at saving and investing and using debt wisely. For more information see the calculating net wortharticle.

6. Current spending patterns

How much do you currently spend on…fill in the blank? If your goal is to reduce your spending and increase your savings, then you need to know what you’re spending your money on now to analyse areas in which you can cut back.

7. Current income patterns

How much do you currently earn? Maybe your goal this year is to get a raise or a promotion. Write down your starting point as a point of comparison for the end of the year.

8. Metrics related to your goals

Do you want to reduce grocery spending this year? What are you currently spending and on what? Want to save for a holiday? How much do you already have saved? Want to pay off your credit card? What is the balance you need to pay off (how much is this a month?). Write down the starting point for anything else that relates to financial goals for the year.

Write down your balances or put them with your budget so that you can look at them throughout the year and compare your progress with your starting point.