The first step in DIY financial planning is to assess one's current financial situation. This involves taking a comprehensive inventory of all financial assets and liabilities, as well as evaluating income and expenses. By gaining a clear understanding of one's financial position, it becomes easier to identify areas for improvement and determine the most effective strategies for achieving financial goals.
To begin, list all sources of income, including salary, investments, rental properties, and any other regular sources of cash flow. Next, create a detailed list of all expenses, including fixed expenses such as rent or mortgage payments, utilities, insurance premiums, and loan payments, as well as variable expenses like groceries, entertainment, and discretionary spending. This will help to establish a clear picture of monthly cash flow and identify areas where spending can be reduced or adjusted.
Once income and expenses have been thoroughly assessed, the next step is to calculate net worth. This is done by subtracting total liabilities (such as outstanding loans, credit card debt, and other financial obligations) from total assets (including bank accounts, investments, and property). The resulting figure represents one's current net worth, which serves as a benchmark for measuring progress towards financial goals.