Welcome to Part 1 of the Finance Coach series; a good friend of mine, Gareth, has agreed to write a 3 part series on looking after your money and I’m really hoping that you’ll all learn from it and hopefully use his services to learn ever more – I know I will be.

Let’s get right to it shall we?

It’s a new year; we all somehow made it through January; and after last year, you’ve decided that you need to get a handle on your finances. But it seems like such a mountainous task – where do you start?

The way to approach something like is best done in three parts: In the first part, you need to define where you want to be. The second part entails defining where you are now. The final part then looks at the actions needed to get from here to there. Today’s post will focus on parts one and two above, with the posts that follow concentrating on part three…

So, where do you want to be? With personal finances, this can mean different things to different people. Some will just look at how much they make; some at how much they spend; some at how much they save; others at how much they’re worth. Personally, the metric that I recommend is that of net worth. This is ultimately the one that matters in the end, as this dictates how much we’re going to be able to live off of when we retire or can no longer work any more (and those don’t always happen at the same time, by the way). So start here, and define where you want to be later on in life. Where will you live? How much passive/annuity income would you like to have? How old will you be? What will your health be like? What expenses will you have? Do you want to travel? Will you want to carry on working in some way? The permutations here are infinite, and you need to take into account factors such as inflation, the expected growth rate of your money, children, medical bills growing, etc. The point is, though, to just do it. Sit down, on your own or with your partner, or with an advisor, and ask yourself the hard questions. You might be shocked at how much you’re going to need to live off – and, tied to that, how much you’re going to have to have saved up to create that income. But rather do that exercise now. The sooner you know, the better, as it then gives you the impetus you need to get your financial house in order.

Right. Got that done? Now let’s look at where you are now. We’ll do this by getting an idea of your current net worth. Take a piece of paper, draw a line down the middle, and date it. On the one side, list all of your ‘assets’ and their approximate values; and on the other, list all of your ‘liabilities’. Your ‘assets’ are basically everything you own, or are entitled to receive – think your house, car, investments, pension fund, bank balances, loose possessions, etc. Your ‘liabilities’ consist of everything that you owe – think mortage bond, car finance, credit card balances, store card balances, student loan, etc. Once you have a running total on each side, subtract the liabilities from the assets, and you have an approximation of your net worth. This is not an exact science, but it should give you a decent idea of where you stand financially, and could either be a pleasant surprise or a wake-up call. Do this exercise reasonably often (I do it every six months), and you can track your progress as you move through life.

Having done these two exercises, give yourself a pat on the back. You’re well ahead of the majority of the population, who have no idea what their financial position is. The next step from here is to look at how we’re going to get from A to B, and we’ll start that in the next instalment, by looking at how to set up (and stick to) a budget…

Looking after your money is incredibly important, the smallest changes can result in such a positive future, I know I’ve spent a lot of time refining everything and it’s worked for me. I asked for help along the way, don’t be scared to, you’ll only be fooling yourself.

Best place to contact Gareth is via his website, which is http://www.goodadvice.co.za – He’s got some great articles and a contact form that you can use to pop him an email.