This is an article that is talking about the financial self assessment that will let you know where you are financially. This is the most basic step for our giant financial goal. So let’s see how we can do it.

When comes to money or personal finance, people will think that the main problem that they are having now is not enough money. They just blame and think that all the financial problems are because of not enough money. So in order to solve the problem, they just keep finding the ways to make more money.

However making more money does not solve our financial problem. Good financial planning and money habits are the way to solve our financial problem. Without them, even though you make millions of dollar, the same financial problem will still follow you.

There are many ways to get started in financial planning and people are confusing with it. However, it will be easier to make the plans if we know where we are now financially and understand all the strength and weakness that we have in our finance. This is why a simple financial self assessment is very important and we must make it as the first step before we make any financial decisions or plans.

Financial Self Assessment

Now let’s get started with the financial self assessment so we can understand where we are now financially. I’m going to show you the financial assessment that I learn from The Cashflow game, a product from famous book author, Robert Kiyosaki. We will use the same theory of financial statement in the game to do our self assessment. This is the simplest and easiest to understand financial statement that I ever read.

Without further ado, here are the steps for financial self assessment:

1. Collect all the data. First you need to collect all the data such as your incomes, expenses, bills, bank statements, assets, liabilities and etc. Yes, it might be troublesome to do so, however, don’t worry and just do it. It will be getting easier as you go on and eventually it will be your habit one day.

2. List down your data properly. Now please list down all the data you have collected in a piece of paper or type it out in your excel file. There are actually 4 kinds of main categories: Incomes, Expenses, Assets and Liabilities and all you have to do is categorize all your data according to the categories.
   PS: According to the book Rich Dad Poor Dad, Assets are something that put money into your pocket and liabilities are taking out money from you. So please use this concept to determine your assets and liabilities here.

3. Put a value and add them up. Now give a value to all your data. List your income, expenses, assets and liabilities and give a value to each of them. After that add them up and get a total figure for each category.

4. Analysis over the figure. Now you should have all the needed data listed properly. Then we can do some calculation or analysis the figure and find out what is the “health level” of your finance.

Analysis that you cannot miss….

So with the data you have right now, we can go through some calculations and analysis to find out how wealthy you are right now. Below is some of the analysis that is important for you:

• Net Monthly Cashflow – First, you deduct the total expenses from your total income. The balance will show you how much money you left each month. This money is very important as it is the extra money that you can use to build your emergency funds, savings, investment and etc. Of course, your job is trying your best to make this number increase positively. To do so, you must learn how to increase the income and decrease the expenses or manage your money wisely.

• How you make your income – How you make money? Through a job? Through a business? Or do you have incomes from business and investment. No matter how you make money, it is quite dangerous if you depend on one kind of income to survive. What about you loss the income? Can you imagine this? So your target is trying to find more income source or build multiple income source of income. For example, while working for somebody, you can start a part time business or invest your money in real estate and generate extra passive income.

• How you spend money – Are you paying multiple credit card debts? Do you own a car that you cannot afford right now? Do you spend so much money to buy something that not really necessary? From the expenses column, you will find the answers. Like what I said just now, it is important for you to learn how to spend and manage your money properly. Make money and spend money have to work side by side. It is risky If you make $100,000 per month and you spend $99,999 or more.

• Assets VS Liabilities – Which one has more value? This is the first question that you must ask yourself. Well, I can say that there are plenty of people have more liabilities than assets. However, for a good and healthy finance, you must own more assets than liabilities.

• Paying too much of debts – Now look at your expenses and liabilities sections, Are you paying too much of debt? If you are paying more than 20% of your income for debts, then you are having too much of debts and you must figure out a way to reduce it.  

Conclusion

The purpose we carry out a financial assessment is we must know where we are now financially. If we have too much of debt, then we must make a plan to pay them off. If we spend more than we earn, then we must pay attention on our spending habits. If we have more assets and high income, then we just carry on what we are doing now or even increase the speed. Different condition will have different kind of actions plan. This is why I said financial assessment is the basic step for our big financial goals.

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