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Level 0: Know where you are

Most people I talked with about optimising their finances, didn’t know where they actually stand. Do you? If yes, you should be able to answer these questions precisely:

  1. My assets are: ____________
  2. My debt is: ____________
  3. My income is: ____________
  4. My expenses are: ____________

Based on these 4 numbers, you can state:

  1. My net-worth is: ____________
  2. My savings-rate is: ___ %
  3. My FIRE number is: ____________
  4. I will be financially free on the: DD/MM/YYYY
  5. My net-worth in 10 years is projected at : ____________

If you have this numbers ready, you are a badass. If not, you can use my personal FIRE template and/or follow these steps:

  1. How to calculate my assets?
  2. How to calculate my debt?
  3. How to calculate my income?
  4. How to calculate my expenses?

Great, now you have the data ready to calculate some performance indicators. If you use my personal FIRE template, it will do it for you. Otherwise you have the steps here:

  1. How to calculate my net worth?
  2. How to calculate my savings rate?
  3. How to calculate my FIRE number?
  4. How to do simple net worth projections?

Now you have the overview and can ask yourself the following questions:

  1. What are my dreams I can buy with money?
    Write down what and how much it will cost (early retirement (1’500’000), Tesla Model Y (60’000) / house (500’000) / watch (8’000) / etc.)
  2. Is the projection of my net-worth in 10 years in-line with the dreams?: Yes / No
    Which dreams are possible? which aren’t?
  3. Looking at my financial situation and the future achievement of my dreams, I feel: euphoric / happy / neutral / insecure / stressed / anxious?
    Write down the answer and why

You might wonder, what is this all about? Aren’t you here to get rich quick? You expected 10 hacks on how to half your expenses. Don’t worry there are more hacks than you need. The key element to financial optimisation is to know where you are today and where you want to go. That means, you need to know what you are optimising for!

If you like the situation you are in now, the projections of your net-worth is aligned with your dreams and you are euphoric or happy about your financial situation: Your financial management is good enough. Leave this blogpost instantly and focus on other things. You will waste your time.

If that is not the case, welcome to the club. Take the time to calculate your starting point and answer the questions above to have a first idea what you want to achieve. This will guide you in the next levels.

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