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Time to check your financial health - March 2013

Just as you are expected to go for regular medical check-ups in order to make sure that you are in good health, the same applies to your wealth. You need to know where you stand financially in order to be in a better position to maintain your current lifestyle and determine your future spending patterns.

So, how do you go about performing this ‘wealth check-up’? Think of yourself as a business and do what businesses do.  Start by reviewing your bank statements and this will immediately tell you how well-off you really are. 

You can then proceed to make a list of all your sources of monthly income. This may predominantly be made up of your salary but it could also include interest payments, rent from leased property, dividends or profits from sale of shares. If you are earning income from secondary activities, you should include all these sources of income on your income statement. Once you have listed everything, add up your total monthly income.

The next step is to make a list of all your monthly expenses. These should include your monthly house loan installment, your car repayment, your credit card bill, your weekly shopping bills, entertainment expenses as well as any medical expenses you may be incurring. Once your list is complete, add up your monthly expenses and subtract this total from your monthly income The result will be your net income.

Net Income = Total Monthly Income - Total Monthly Expenses

If your net income turns out to be positive, it means that you are earning enough to cover all your monthly expenses and can afford to maintain your current lifestyle. If, on the other hand, the result is negative, then it means you need to start cutting costs and reduce your monthly spend.

Now you can determine how wealthy you are, and to do this you can adopt a balance statement approach, which establishes how much you are worth, in money terms of course.  Start by making a list of all your assets things you own such as property, bonds, shares, your pension fund, cash in hand and your car. Put a value next to each asset and add these up to get your total assets value. Next, make a list of all what you owe, which in financial parlance are called liabilities. Your total should include what's left to repay on your mortgage, car loan, credit card balances and any outstanding balance on income tax due or utility bills. Add these up and subtract your total liabilities from your total assets.

Net worth = Total Assets - Total Liabilities

If your net worth result is positive, your goal from one year to the next should be to make the positive difference grow. If, on the other hand, your net worth is negative, you are not financially fit and need to start thinking of ways to cut down on expenses and establish a plan on how you’re going to repay monies owed to institutions or other third parties.

As you can see, performing a financial fitness review is not rocket science. But you do need to set some time aside to really think things over, and start planning and focusing on a disciplined approach on how to develop a habit of saving part of your income. There is no guarantee that you will not encounter problems, and the only way to meet your daily financial challenges successfully is to live within your income. What is guaranteed is that seeing your financial fitness improve will give you the sense of satisfaction that you are doing something positive to take responsibility for your financial future.

FIMBank p.l.c. are the operators of Easisave, a secure online savings account that offers a leading interest rate on online savings accounts. This innovative flexible and secure platform allows customers to manage their savings 24/7 over the internet and earn a high interest. For further information call 2132 2102 or visit www.easisave.com