It's often said that knowledge is power, and when it comes to personal finances, this saying couldn't be more true. Having full awareness of your financial situation is the first step on the path to achieving financial wellbeing.
The first and most fundamental step in managing your finances effectively is knowing where your money comes from and where it goes. By understanding your income, expenses, debts, and savings, you can create a budget that allows you to live within your means, save for the future, and avoid unnecessary debt.
One way to help you gain this view is through cash flow modelling. This is a tool which can help reveal how your current financial situation measures up against your life goals. It can also help you assess the financial impact of any changes to your future plans. A financial planner can explain how your future financial position might be affected by a range of scenarios, such as retiring earlier or later than expected.
When you're aware of your financial situation, you can set realistic and achievable financial goals. Whether it's buying a home, sending your children to university, or retiring comfortably, having a clear picture of your finances enables you to plan for these milestones with confidence.
A solid grasp of your financial situation will allow you to build an emergency fund to cover unforeseen events, helping you avoid falling into debt or financial crisis. We suggest building an emergency fund of six months of basic expenses to cover any unpredictable or unexpected expenses which could arise at any time.
Financial stress can take a toll on your mental and emotional wellbeing. Being informed about your finances could bring peace of mind, as you have a clear plan and the confidence to face financial challenges.
Understanding your financial situation is not a one-time task, it's an ongoing process. Make it a priority to really understand your finances and you'll be better positioned to make informed decisions about your future, achieve your goals, and enjoy true financial wellbeing.
Katie Nutting, Financial Planning Director
Here are three simple steps to help you gain financial knowledge and empower yourself to make informed decisions about your finances.
1. Understand your financial position by creating a detailed financial statement which should include:
A well-structured financial statement could give you a clear overview of your financial health.
2. Determine your financial objectives, both short-term and long-term. Be specific about what you want to achieve. Your goals could include building an emergency fund, paying off debt, saving for a holiday, or planning for retirement. Having clear goals gives your financial decisions purpose.
3. Consider consulting with a financial adviser or planner. They are experts in the field and can help you:
While there might be costs associated with professional advice, the potential benefits in terms of financial stability and returns could far outweigh the fees. At Schroders Personal Wealth, there are no hidden fees or charges and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.
Understanding your financial situation is not a one-time task; it's an ongoing process. Regularly reviewing and reassessing your financial status is essential to adapt to changes in your life, goals, and economic conditions. It’s also important to remember when investing, that the value of investments and the income from them can fall as well as rise and is not guaranteed and you may get back less than you invest.
It is through this knowledge that you can achieve financial wellbeing and peace of mind. It's not just about making more money; it's about using what you have wisely.
This article is for information purposes only. It is not intended as advice.
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