If knowing what you have is the first stage, understanding how you got there is the first level of understanding that is needed to build Your Financial Plan. With money you can either ‘Spend It’ or ‘Save It’, to keep things relatively straight forward you should break down your expenditure 4 ways.
- Fixed Term Expenses – the expenses that will one day come to an end. If these are too high and not managed, financial independence may be a long way off. Car Loans, Mortgages etc.
- Basic Lifestyle – the costs of meeting your basic requirements that should include sensible budgets for the ‘inevitable’ e.g. property maintenance.
- Miscellaneous Spend – Essentially monies that fall into the ‘disposable income’ category and monies that get spent, but we don’t always know where. This is often where you look for ‘habits’ and will be your source for additional planning.
- Luxury Spend – these are the nice to haves that day to day we can live without, but that we would want to make provision for i.e. weddings, special holidays.