If you meet with a financial adviser, the first thing they will do is take you through a fact-finding process to understand your current financial position. This financial profile then forms the basis for advice.
Today you can begin work on your own financial profile, starting with income and expenditure. It’s up to you how you record this. You can simply write it on a piece of paper, make your own spreadsheet, or use the handy Financial Profile I have created here: My Financial Profile
Some of you may already know exactly what your monthly income and outgoings are. Maybe you are recording them already, in which case, well done! Some people may have a general idea but have never actually looked at the numbers in detail. And then there are the “I don’t know where it all goes” people – this is for you guys especially!
Start by opening the first tab of the Financial Profile – Income and Expenditure. If it’s your first time doing this you may prefer to record the figures on a monthly rather than an annual basis. The top part is for income. If you have a regular job and tax / insurance / pension contributions are deducted at source, you may find it easier to simply record your net earned income – the amount that actually gets paid into your account every month. If you are self employed and/or have income from multiple sources you may find it easier to record your gross income. If your income fluctuates you may want to look back over the last three years and work out an average number.
If you have income from sources other than work, such as rental or investment income, then record those too and total it all up. If you have a partner who also has income, record that too.
Now for the fun part! Figuring out all the things you spend money on every month. Some organised people might be keeping receipts and records already. If you belong in the “I don’t know where it all goes” group, you may actually need to spend a couple of months gathering receipts and keeping track of your spending. A friend of mine recommended the Spending Tracker App. However you do it, try to record everything you spend over the course of an average month. If you have to estimate some items, that’s fine.
What we are really looking for is a number in the box at the bottom, indicating your monthly surplus over expenditure, or disposable income. Simply put, it’s the money that’s left over at the end of the month. Knowing this number helps us understand later how much of our savings we should be allocating to longer term investments each month. Total income minus total expenditure gives you your disposable income.
If you find that you have more month left over at the end of the money, then the first thing you need to do is look for things that you can cut from your expenditure list. Remember the goal here is to spend less than you earn so you have money left over to save for the future.
So hopefully you have been able to work out your monthly surplus over expenditure. Let me know if you have any trouble with this.