Awesome Tips In Knowing Your Financial Status in the Philippines
How do you actually start to managing your money the smart way? That is the question that this article is going to answer. This is part of a series of articles on Pinoy financial planning made easy, and if you haven’t already you can actually go and read the post on in having a financial plan and then come back here.
What is the Importance of Knowing Your Financial status?
Having a clear picture of your present standing makes you aware of how much you are earning, how much you are spending, how much you end up saving, and how much you are setting aside for investing.
The choices that you make in the present will impact your future situation. What you do today with money—such as earning, spending, saving or investing—will change how much you will have years ahead.
If you do not know much money you have and how much you are losing now, you will have a harder time estimating and taking control of your future.
Another reason to get to know your financial status is to have a starting point or a way to measure your progress.
If it is your first time, you can use it to mark the beginning of your journey to be financially free. If you have been regularly reviewing your finances, you can use it to track your progress so far in relation to your financial goals.
There are two things that you must start and be comfortable doing:
1. Calculate your net worth
2. Make a cashflow analysis
3. Calculate your debt-to-income ratio
4. Find out where your money is spent
Determine your net worth
You hear net worth of movie stars and wealthy businessmen mentioned so many times you think only theirs deserve to be examined. That’s not true. Everyone needs to know how much they are worth, no matter what the result will be.
A personal net worth is a measure of the things you own (called asset) against the things that you owe (called liabilities).
It allows you to count your cash and the things that you currently possess, and list down the debts and other obligations that you are duty-bound to pay. This is called a balance sheet.
Whatever is the difference between assets and liabilities from the balance sheet is your net worth.
Your balance sheet can reveal many things. It gives you a snapshot of all your possessions and debts, and whether you own more or less one or the other.
If you have more assets than your liabilities, you are a in a better standing than if your asset is less than your liabilities.
The size of a net worth can be predicted by age. It is expected that you have less asset when you’re younger, and you will have more as you start working and earning and acquiring properties.
| ASSET | LIABILITIES |
|---|---|
| Real estate | Mortgages |
| Checking accounts | Consumer debt |
| Savings accounts | Personal loans |
| Retirement accounts | Student loans |
| Autos | Auto loans |
| Bonds | Other debt |
| Stocks | |
| Investment funds | |
| Life insurance | |
| Jewelry | |
| Household items | |
| Cash | |
| Other |
Make a cashflow analysis
Don’t let the name fool you. A cashflow analysis is simply a summary of income and that things you are spending it on.
It is an estimate of the minimum amount of money that will enable you to maintain a standard of living that you are comfortable with.
Cash flow analysis lists of all your earnings and all your expenses. And that is why it is also sometimes called a statement of living expenses or income statement.
If you have more income than your expenses, then whatever left-over cash is called a surplus.
On the other hand, if your income is less than your expenses, which means you are spending more than the money that you are earning, it means that you have a deficit.
The ideal situation is that you have a surplus that you can use for saving, getting insurance coverage, and investing.
| INCOME | EXPENSES |
|---|---|
| Main job | Rent or mortgage |
| Spouse’s main job | Car payment |
| Part-time job | College loans |
| Spouse’s part-time job | Other loans |
| Business revenues | Insurance |
| Spouse’s business revenues | Groceries |
| Interest & dividend income | Dining out |
| Rental income | Gasoline |
| Cash gifts | Electricity |
| Gambling winnings | Gas |
| Windfalls | Water/sewer |
| Tax refund | Telephone |
| Clothing | |
| Habits | |
| Cable TV | |
| Cell phone or beeper | |
| Entertainment | |
| Medical | |
| Other | |
| Hidden expenses |
3. Calculate your debt-to-income ratio
It’s time to examine your income more closely after determining your net worth because, as you may recall, income is not taken into account while calculating net worth.
Your debt-to-income ratio is determined by dividing the entire amount of debt payments you make each month by your gross monthly income.
4. Find out where your money is spent
I neglected to make a budget for a very long period. I simply watched that my bank account didn’t go overdrawn and put as much money as I could each month into savings, which was occasionally not much. I made a bad financial decision.
You need to be fully aware of the sources and destinations of every dollar. This could appear absurd and time-consuming.
Believe me, it is. However, you must have a strong relationship with your money if you ever hope to advance financially.
You can make a budget if you have a clear idea of where your money is going. Once more, perfection is not the aim every single month.
In fact, you’ll probably fail if you try to be flawless and never spend more than you planned.
Instead, stick to your spending plan for the money you already have. Make sure some of your cash is set aside for savings.
Next steps
The primary goal of knowing your present financial status is to understand your life from the stand-point of money. Find the time to determine your net worth and your cash flow.
Your net worth provides a bird’s eye-view, while the cashflow analysis on the other hand tries to show the minimum income you should have to cover your expenses of your daily living.
Together, they are your necessary bearings when you are defining your goals, the next stage of your financial planning.
Read More:
Reasons Why You Are Not Saving Philippines 2022
How Much to Save Monthly to Earn 15M Pesos in 20 Years Philippines
3 Easy Steps to Determine Your Financial Goals
