Establishing a baseline

The first step in personal financial planning must be fully understanding your current situation. Think of this as a journey to meeting your financial goals: how can you set a meaningful destination without knowing where you’re starting from? How can you plan your route from point A to point B if you don’t know where point A is?

Understanding your current situation means developing a ‘baseline‘ — a line in the sand which represents the starting point of your journey to meeting your financial goals, whatever they may be. The baseline will be essential in developing your action plan — what you need to do, and monitoring your progress — seeing how far you’ve come since today, day zero. The day you take control.

Two of the tools I found essential in establishing my own baseline were:

1. Personal balance sheet (the balance of your assets and liabilities)
2. Cash flow statement (analysis of your income and expenditures)