Want to be on top of your finances? Bruce Sellery has advice on taking a “financial photograph”.
What is a financial photograph?
Photographs capture a moment in time – sometimes it’s a great moment and other times you might not love it. A “financial photograph” captures what is going on right now in your financial life – it gives you a sense for where you are.
Why would you want to know that?
There are two benefits to a financial photograph:
1. You know where you are: You can’t get where you want to go if you don’t know where you are! This is helpful for setting and achieving your financial goals.
2. It shows you what is happening in reality: Knowing the ins and outs of your finances can be an eye opening experience, “I thought I was making a $50,000 per year, but really I’m not.”
How do I take a financial photograph?
There are three things to consider when taking a financial photograph: net worth, cash flow, and strengths and weaknesses.
Net worth: Net worth is what you “own” minus what you “owe”. You can think of this as the financial equivalent to stepping on the scale. While your weight doesn’t tell you everything about your health, you can watch the results over time and that can tell you something.
Tip: Calculate net worth once a year to see how it is changing.
Cash flow: This relates to knowing where your money is going. Take your income and subtract your expenses over a 6-month period. It might surprise you to find out where you are spending all your money!
Tip: Choose 1 or 2 things to change that will make a difference.
Strengths and weaknesses: Think about what you do well and don’t do well when it comes to money. Are you a good spender or saver? Are you well organized? Evaluating your strengths and weaknesses is the best way to take steps towards improving your financial photograph.
Tip: Choose 1 or 2 weaknesses to address and commit to doing something different.
To get in touch with Bruce, email ask@moneysense.ca and watch the clip below for more financial photograph advice!