Take Control of Your Money: Where Do I Start?

Where do I start?

Personal finances are, well, personal. Everyone’s start and end points will be different. That said, I always believe the first step is awareness. To gain control of your finances, you need to know where you are starting. It’s time to do a financial health check. I call it the Wealth Check. 

I’ve seen many gurus and finance professionals suggest starting with the end in mind: i.e. what are your financial goals, what do you want for your life, what is your financial vision, etc. While it’s not a bad approach for some, I personally have always found these questions overwhelming... How can I plan for everything I might possibly want from my life at this time? What if my priorities change? I don’t know what I want to be when I grow up! 

But the bigger problem with this approach is that if you don't know where you’re starting, how can you build a plan to go where you want? If you open google maps to figure out the directions to get to the restaurant, it will require you to put a start location. So let’s figure out the start location. 

The financial wealth check is often the biggest step you will take on your journey to gain your financial independence.  I’ve seen women describing it as getting your exam back in high school, knowing very well you didn’t study enough, and not wanting to turn the paper around to see the grade. If you can stick with me through the financial wealth check, you’re going to rock what comes next. And remember that this is for you. There is no one judging your performance. 

Calculating Your Net Worth. 

This one is pretty simple. Open a spreadsheet (or use the free Net Worth Tool on our site). On one side list out the value of what you own (your assets). On the other side, list everything you owe (your liabilities). Then subtract your liabilities from your assets, and this is your net worth. 

• Assets: savings, retirement savings, value of your home (divide it in two if you own it with a partner), any investments, etc. Only include things that are tangibly yours and easily converted to cash  (i.e. if you’re expecting a bonus in 6 months, it’s not part of your current net worth). 

• Liabilities: student debt, mortgage debt divide it in two if you are a co-borrower with a partner), auto loans, credit card debt, etc. 

Assets - Liabilities = Net Worth

The number might be positive or negative. If positive, it means that you own more than you owe. Good start. If negative, it means that your debts are greater than the assets you possess. That is not atypical, especially if you have a large mortgage or a large amount of student loans and early in your career. Whatever the number is, our goal will be to bring it to the positive and increase it. 

Understanding your monthly cash flow. 

From the previous exercise you know at this moment in time what your financial picture looks like. But this is not a static picture. Every month, you likely make and spend some money. These inflows and outflows of money (your cash flow) impact your net worth at any given moment, so you need to have a good understanding of them. 

Open a new spreadsheet (or use the monthly ins and outs free tool on our website). On one side, list out all your monthly inflows of money with estimated dollar amounts. On the other side, list out all your money outflows. Subtract the out from the in, and this is your monthly cash flow. 

• Inflows: net salary, allowances, revenue from side gigs, from sold items, etc. For salary income, It’s best to open your online banking account, and report the numbers that you see there as these are usually net (i.e. taxes have already been deducted from your salary by your employer).

• Outflows: those are a bit trickier. If you spend everything on a credit card, downloading the last month of transactions will give you a good idea of your spending. Chances are however that you spend on a variety of payment methods (i.e. rent cheques, pre-authorized debit for some utilities, credit cards, cash, debit cards, etc). If your spending is fragmented, you might want to dedicate 5 minutes a day to journal your expenses of the day. Perhaps on your commute back from work, open up the notes app, and add everything you spent that day? At the end of the month, tally your expenses and that will be an estimate of your monthly outflow. 

Monthly Cash Flow = Monthly Inflows - Monthly Outflows 

The number might be positive, negative, or close to neutral. Negative means that every month, your net worth is decreasing. Neutral, you are basically living paycheque to paycheque. And positive, you are growing your net worth every month. We need this number to be positive, and we will address ways to get there by focusing on each part of the equation: growing the inflows or decreasing the outflows (or both!). In the meantime, record and stare at the numbers. Chances are that by understanding where your money is going, you might already see some of the changes you need to make to improve your cash flows substantially. 

Congratulations wealth-building feminists, you have taken what I think is the hardest and most foundational step in building your wealth. Knowledge is power. And your knowledge is giving you the power to choose and take control over your money.