Many people make the mistake of simply looking at the money in their bank account, and assume that this is their only resource. This is not the case.

It is vitally important to quantify where you are now before any attempt at all can be made on the journey of getting you where you want to be. We have to know where you are starting from to know the direction and pace of travel in which to move.

This can be hard work, depending of course on the complexity and extent of your existing resources. There are, however, no shortcuts unless you employ someone else to do this on your behalf. This work is very necessary and very worthwhile. By doing the work, not only will you get a true picture of the resources available to you, but also you will be one step closer to living the life you want.


Getting started

The first thing you need to do is to list all your resources. For some, this will be a simple matter of checking what is in the bank. For others, it will require gathering data from several different insurance, investment and banking companies. You may also need to speak with estate agents, pension providers and Trustees. It will also be necessary to look in detail at your expenditure plus of course your income from all sources. 

For example, this could include:

  • assets (your home, your car, your business)
  • savings and investments (ISAs, savings accounts, stocks and shares and so on)
  • pensions (State, Personal and Occupational)
  • life assurance policies.
  • entitlements under any Trusts
  • other property such as buy to lets or commercial property

You can do this by completing this worksheet, developing your own spreadsheet or by using an online tool. There are plenty online, some which you have to pay for, but Word and Excel templates are typically free to download. 


All in one place

The data needed includes details of your current assets and liabilities and your day-to-day expenditure (you need to be honest here: if you spend £15,000 a year on holidays and £5,000 a year on wine, write it down). You should also then note what changes in your expenditure there may be in the future, this being your future desired lifestyle, retirement and later life years.

Think carefully about the answers you give for expenditure. Take a detailed look at least three months’ bank statements to see where your money is going; the same for credit card statements. A lot of people now put regular expenditure on credit cards and then clear them off every month without really thinking where the money is going. Don’t just look at the bank account – where else may you be drawing your expenditure monies from? How about cash?

If you have online banking, you can export your bank and credit card information as a CSV file. Check your bank’s online resources for this.

If you want to, and if it suits you, there are now also some very good apps designed for gathering and analysing expenditure data. Some are standalone like Xpenditure and Expense Manager; others are part of a suite of personal finance apps such as MoneyHub and OnTrees. Some advisory and Financial Planning firms may even provide such apps and solutions to you as part of their service proposition.   

This exercise is about gathering all of your financial data – your savings, investments, assets, debts. It is also about taking a realistic look at your incomings and outgoings now and in the future.


Pointers for business owners

Note: If you are self-employed or run a business with a flexible income, you can work out your average taxable income from your past tax returns. 

If you plan to sell your business in the future, you should include this in your figures as an asset. However, the valuation used is key.

There is also a big difference between an owner-manager business and a true corporate entity. What is your emotional attachment to the business? Are you prepared to sell? What if you knew you had all the money you would ever need? Would you carry on with the business? These factors are critical to not only the value you place on the business but also whether or not that value is easily to capitalise (i.e. turn into cash). 

The economy can change dramatically for businesses and what is a successful, saleable business now may not be in five or ten years’ time. Some are of the opinion that you must plan for a business sale – a factor beyond the scope of this article. It really comes down to whether or not you are running a lifestyle business or a true corporate entity.


How much are you really spending?

Then you need to list your annual expenditure, as well as your expected future annual expenditure. You can creating your own self-calculating spreadsheet or download our Lifetime Focuser.

Once you have gathered all this data, you can deduct your current annual expenditure from your annual income to see exactly how much money you have ‘left over’. This is known as your discretionary income and will help you decide what income resources, as opposed to capital resources, you have available to you to allocate towards your goals. In simple terms how much you can afford to save.   

I can almost guarantee that the first time you do this exercise you will have a lot more discretionary income than you thought. This is normally because people will underestimate their expenditure and will forget all the smaller everyday things that soon add up; Starbucks coffees, kids pocket money, a few pints down the pub, popping out for lunch, the window cleaner, etc. 

The key question to ask yourself having first discovered your discretionary income figure is “could I put this £x per month / per year into a savings account without it affecting my lifestyle now?”. If the answer is no, then you have missed some expenditure somewhere.

If you have done this exercise and there is a negative discretionary income figure, then there only three things you can do:

  • Earn More
  • Spend Less
  • A combination of the above

But that’s a subject for another article. Right now you’ve got some budgeting work to do.


Where do I start?

If I asked you right now what do you want from your life, what would your immediate answer be? A sports car? To travel the world? To retire or, perhaps, to leave a legacy?

All of us have things that we would like to achieve in our lives. It could be two, five or ten years down the line, or perhaps we may want to leave a legacy of some kind. To realise these dreams, we need to be both focused and financially organised. This is the essence of True Lifestyle Financial Planning

It’s with this lesson in mind that I set out to write my book, Live Life With Purpose: A Guide to Getting a Life Plan and Sticking With It. This book will help you take the steps to live life with purpose. It will help you gain clarity. It will show you how to implement the six steps needed to create a sound Life and Financial Plan so you can ultimately achieve your goals.

We’re offering free copies of Live Life With Purpose to anybody who feels they would benefit from it. Simply go to this page, tell us where to send it, and we’ll pop a copy in the post for you.

I hope you enjoy reading the book and putting into practice some or all of the lessons it contains. Even if just one idea sparks you into taking some action, then I have achieved what I set out to do.